Where Does Construction in Progress Go on the Balance Sheet?

February 25, 2024

A construction-in-progress account is a general ledger accounting account in which the costs associated with constructing an asset are recorded. The assets are moved to the appropriate fixed asset account when the asset is completed and put into service, and depreciation begins at that time. A CIP account can be used to track the construction of new buildings, purchasing or upgrading equipment and other long-term projects that may take months or years to complete.

CIP accounts are often targeted by auditors because they are a way for companies to avoid recording depreciation, which can lead to inaccurate profit reports. Companies can also store costs in CIP accounts for longer periods than is necessary, which can cause them to under or over-bill clients.

For example, a company that is building an expansion of its warehouse will open the account Construction Work-in-Progress for Warehouse Expansion to accumulate all the expenses. Eventually, the project will be completed and the value in the CIP account will be transferred to the asset account Warehouse Expansion. The CIP account will then be closed.

This process is important for contractors to accurately track their costs and profits, and is essential in ensuring that the CIP account balances out with the corresponding asset account. It is also important to correctly record each cost associated with a project, such as the materials, tools and labor that are needed for the construction. This information can be gathered from vendor invoices, inventory sheets and other sources.

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