Job costing is a regular management review for businesses that quote and deliver individual projects, jobs or client assignments. It helps an owner see what the work is expected to earn before the final invoice or year-end accounts make the result impossible to change.
Keep four measures separate
| Measure | What it answers |
|---|---|
| Agreed value | What the customer has agreed to pay, including only approved changes. |
| Income recognised for management purposes | The income the business is treating as earned under its stated internal method. |
| Amount invoiced | What has been billed. Billing can lead or lag the work. |
| Cash received | What has reached the bank. Cash timing is not a profit result. |
Do not add deposits, invoices and cash receipts to the agreed value as though each creates new income.
Cost the work consistently
Use the same definitions from quote to review. A practical direct-cost structure can include people, stock or materials, external suppliers, delivery or travel, software or project expenses, and other costs that arise only because of the work. Record credits against the same category.
Show committed costs as well as costs already posted. A supplier order or signed subcontract may not yet appear in the bookkeeping system, but it is still relevant to a current decision. Compare the revised budget with committed and actual cost so a late bill cannot make a project look healthier than it is.
Keep overhead separate unless you have a stated, consistent allocation basis such as productive hours, direct cost, project duration or revenue. Avoid allocating the same overhead twice through charge-out rates and a separate overhead row. Show direct contribution before allocated overhead and fully loaded profit after it.
VAT and accounting boundary
Use income and cost net of recoverable VAT. Include irrecoverable VAT in the relevant cost. VAT timing can affect cash flow, but it should not distort your management view of profitability.
This guide supports internal management. It does not determine statutory revenue, work in progress, tax or the amounts required in formal accounts. The accounting treatment depends on the applicable framework, the contract and the business's accounting policies.
A practical weekly routine
- Update the agreed value for approved changes only; keep unapproved scope changes visible but separate.
- Update the chosen income or earned-value measure without adding invoices or cash to it.
- Post current people, supplier and project costs; reconcile credits.
- Add known commitments that have not yet been invoiced.
- Compare revised budget with committed-plus-actual cost, then calculate direct contribution and fully loaded profit where used.
- Investigate the largest adverse movements and assign an owner and date for the next action.
Common mistakes
- Judging margin from a bank balance while unpaid invoices and committed payments affect timing.
- Waiting for supplier bills before recording a known commitment.
- Comparing actual cost only with an original quote after an approved scope change.
- Treating an internal worksheet as a statutory accounting calculation.
If you run a construction or trade business, use the specialist CIS, VAT reverse-charge and retention resources alongside this general project-costing method.
Who this is for
This resource is most useful if your business quotes and delivers individual jobs, projects or client assignments. Use the same approach for the work that is most material to your business.
Related FoxSums resources
- Job Profitability Worksheet
- Overhead Recovery Calculator
- How to Price Jobs and Projects Profitably
- How to Read Monthly Management Accounts
Next step
Use the Job Profitability Worksheet to compare the quote, approved changes and actual costs before you price the next project.
Important
General information only. Check the facts and current official guidance for the business’s circumstances.
Sources and review
- Evidence check date: 2 November 2026.
- FoxSums operational guidance. This resource does not make a tax, legal or regulatory determination.