Cost-plus vs fixed-price accounting for builders
Same house, different books.
Short answer: On a cost-plus contract, the builder bills actual costs plus an agreed fee or markup, so accurate, documented job costs are the invoice. On a fixed-price contract, the builder bills an agreed price on a schedule, so job costing protects margin rather than driving billing. Both need costs coded by house and cost code every month.
Cost-plus
- Every bill must be coded and backed up, because the client pays it
- Track the fee or markup and any cap
- Report cost to date and fee earned to the client
- Watch for costs that are not billable under the contract
Fixed-price
- Bill on the contract schedule or by draws
- Margin is at risk on every overrun
- Change orders and allowance overages are how you recover added cost
- A WIP schedule shows if billing is ahead of the work
What stays the same
One cost code list, every cost tied to a house, a monthly close, and a change order log.
Sources
- FASB, ASC Topic 606, Revenue from Contracts with Customers
- IRS Publication 538, Accounting Periods and Methods
Common questions
Which is better for a builder?
It depends on the client and the risk you want to carry. Your contract terms and your attorney decide that.
Does the contract type change my taxes?
It can affect how revenue is reported. Ask your CPA.
Can you report to cost-plus clients?
Yes. We prepare cost to date reports by house.
Related
By John Mos, Founder. Updated . We do not give tax or legal advice. Please ask your CPA or attorney.
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