Bookkeeping for a Renovation Company: Materials, Deposits, and Draws
How to record material invoices, contractor deposits, and progress draws on the accrual method, plus practical setup tips for renovation bookkeeping.
Renovation and construction bookkeeping raises questions that standard accounting courses rarely cover. A common one: when a materials invoice arrives, is it a prepaid expense until the project finishes? And how should contractor deposits and draws be posted? Here is how the accrual method handles each, and how to keep the books clean.
Are material invoices a prepaid expense?
No. On the accrual method, a materials invoice is an expense, or an asset, the moment the goods are received, not when the project completes. Prepaid expenses are payments made in advance of receiving anything, such as insurance paid annually upfront. Once lumber or fixtures are delivered to the job site, you have received the goods.
The usual treatment is to post materials to Cost of Goods Sold, or to an inventory or “materials in progress” asset account if you want costs tracked by project. If you pay the supplier before delivery, that payment is the prepaid portion. When the materials arrive, reclassify it to the project cost.
How should contractor deposits and draws be posted?
Deposits and draws are payments against work, not the expense itself. The clean approach is to post every payment to a “contractor deposits” or “progress payments” asset account. This represents money paid for work not yet performed.
When the contractor bills for completed work, recognize the full amount of that bill as construction cost expense, and clear the related deposit against it. The net cash movement may be small, but the expense recorded is the value of work actually done in the period. Posting only the deposit amounts, as the bookkeeper in this situation was doing, understates costs and misstates GST/HST input tax credits, because the credit is claimable on amounts billed, not merely paid.
Does this method satisfy GAAP?
Yes. The matching principle requires expenses to be recorded in the period the related revenue is earned. For a renovation business, that means recognizing material and labour costs as the work progresses, matched against progress billings to the client. Deposits sit as assets until earned. This is the core of percentage-of-completion thinking, simplified for a small contractor.
Practical setup tips for renovation books
- Use classes, projects, or jobs to track each renovation separately, so profitability per project is visible.
- Keep a clear chart split between materials, subcontract labour, and employee labour.
- Reconcile the contractor deposits asset account monthly; every balance should map to an open contract.
- Record GST/PST on billed amounts and claim input tax credits when invoiced under the accrual method.
- Watch for holdbacks if your contracts use them; they are a liability until released.
If the books have already been built around deposits-only posting, the fix is a dated reclassification: move cumulative deposits from expense to the asset account, then expense them as the corresponding work is billed. If you are also migrating or cleaning up historical data, our guide to converting Sage 50 Canada to QuickBooks covers what carries over, and our QuickBooks Online help and troubleshooting hub has project-tracking walkthroughs for setting this up going forward.