According to Wikipedia, construction work-in-progress, also known as construction in progress (CIP), is an asset or capital entry in your records for the cost of construction work not yet completed. It is not depreciated until the asset is placed in service. Upon completion, the item is reclassified, capitalized and depreciated.
For example, the account work-in-progress will have a debit balance and will be reported on the balance sheet as a component of a company’s plant, property, and equipment. Costs are accumulated until the asset is placed into service, when it will be credited for accumulated costs and debited to the appropriate property, plant, and equipment account. Depreciation begins after it has been placed into service.
View the Construction Work-In-Progress Accounting Tips infographic shared here for an example. Click on the graphic to enlarge the image.
- Whenever a new CIP is being recorded, pre-screen the CIP related invoices when they are first entered into your accounting system. This helps to ensure items expensed are charged “off” at once. Avoid adding these invoices into the CIP account to help reduce the risk of capitalizing these items when they should be charged off immediately.
- If you want to use CIP as a project’s tracking mechanism, create two sub-accounts. One account will store items to be charged to expense. The other will be items to be capitalized.
How We Can Help
When it comes to construction accounting, it’s best to speak with a CPA that specializes in your industry. What additional questions do you have about accounting for construction in progress?