How do you calculate construction in progress in accounting?

Answer 1

Construction in Progress (CIP) is the accounting term that refers to the temporary classification of assets that are being built/assembled before being placed in service. Companies must track these expenses in a special "construction in progress" G/L account until the asset is complete. Depending on the size of each project, construction in progress can be accounted for on the books of a company for several years. Companies may have from just one or two up to hundreds of CIP projects. Each project may contain from one to hundreds of items being tracked. And, each item may represent the sum of numerous expenses/invoices. The sum of the individual expenses for an item in a project will determine the value of the fixed asset when placed into service. Total spending for each item and the overall project is budgeted at the beginning of a project and often tracked closely. Accounting for construction in progress can apply to everything from building a hotel, manufacturing plant, or office building to purchasing, shipping, and assembling machinery. The asset is not depreciated until construction is completed, certificates of occupancy are issued by local government inspection, and the asset is placed into service