Glossary

Contractor bookkeeping terms, in plain English.

Every term here is one a contractor actually meets — on an insurance audit, in a lender's request, or in a conversation with an accountant who assumed you already knew. No circular definitions.

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Bank reconciliationreconcilingA bank reconciliation proves that the cash balance in your accounting file matches the bank statement for the same date, with every difference explained.
Break-even pointbreak-even revenueThe break-even point is the revenue a business has to bring in to cover all of its costs, with nothing left over as profit.
Certificate of insuranceCOIA certificate of insurance is a document from a subcontractor’s insurer confirming they carry coverage, for what limits, and for what dates.
Change orderCOA change order is a written, signed amendment to a contract that changes the scope of work, the price or the schedule after the original agreement.
Cost of goods soldCOGSCost of goods sold is everything you spent that only exists because a specific job happened — materials, field labor, subcontractors and equipment for that job.
Days sales outstandingDSODays sales outstanding is how many days of revenue you are carrying unpaid at any moment — outstanding receivables divided by average daily revenue.
Experience modification rateEMRThe experience modification rate is a multiplier applied to your workers compensation premium based on your claims history compared with other businesses in your classification.
Gross margingross profit marginGross margin is the share of each sales dollar left after the direct cost of doing that work — measured against the price, not against the cost.
Job costingjob cost accountingJob costing is tracking the revenue and direct costs of each individual job, so you can see what every job actually made rather than only what the company made overall.
Labor burdenburden rateLabor burden is everything an employee costs you on top of their wage — payroll taxes, workers compensation, unemployment insurance and benefits.
Lien waiverlien releaseA lien waiver is a document in which a contractor, subcontractor or supplier gives up some or all of their right to place a lien on a property, usually in exchange for a payment.
Markupmarkup percentageMarkup is the amount added to cost to reach a price, expressed as a percentage of the cost — not of the price.
Overheadfixed costsOverhead is the cost of existing — everything you would still pay next month if no work came in at all.
Progress billingprogress paymentsProgress billing is invoicing a job in stages as the work is completed, rather than billing the full amount at the end.
RetainageretentionRetainage is a percentage of each payment withheld by the customer until the job is complete and accepted, as security that you will finish the work.
Trust fund taxespayroll trust fundTrust fund taxes are the amounts withheld from employee wages — income tax and the employee share of FICA — that the business holds on the government’s behalf rather than owning.
Work in progressWIPWork in progress is the value of jobs you have started and not finished — work performed that has not yet been billed, or billed that has not yet been performed.
Working capitalnet working capitalWorking capital is current assets minus current liabilities — what you could convert to cash within a year against what falls due within a year.

Knowing the words is not the same as having the numbers.

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