What is Construction In Progress Accounting_ Everything You Need To Know

What is Construction In Progress Accounting: Everything You Need To Know

Construction in progress accounting is one of the most important categories to keep track of for construction firms.  In this entry we will discuss what construction in progress accounting is, how to record it, and provide an example of what it may look like in your books.


Accounting in the construction industry differs from most other industries. With construction companies always on the move, there are more categories and accounts to keep track of, creating challenges that are unique to this industry. One of these challenges is learning how to record construction in progress accounting.

construction in progress accounting
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What is Construction in Progress (CIP) Accounting?

Construction in progress is an accountancy term for all the costs of construction associated with the building of fixed long-term assets. The construction in progress account has a natural debit balance, and is labeled as property, plant, and equipment as part of a company’s long-term assets on a balance sheet. Accountants will begin tracking depreciation once construction of the asset is complete and is put into service.

The CIP account is basically just an account for recording all the different expenditures that will occur during a construction project. Because of this, it can be one of the largest fixed asset accounts in the books. 

Construction in progress accounting is also a prime target for auditors due to the length of time the account can be left open. Because companies can store costs under the account for extended periods of time, they can avoid depreciation, therefore reports could have profits listed at a higher value than they really are.
Note: CIP accounting and Work in Progress (WIP) should not be used interchangeably. While CIP accounting is used to record the construction expenses of a long-term asset, WIP accounting is used to track short-term projects.

Why are CIP Accounts Needed?

CIP accounts are crucial in construction accounting because they help keep track of all the money spent on a project until it’s finished. This includes costs for materials, labor, and other expenses. By using CIP accounts, companies can accurately monitor spending, budgets, and correctly report their financial status. This method separates project costs from everyday business expenses, minimizing confusions and making financial statements clear and reliable.

Once a construction project is completed, the costs in the CIP account are moved to a fixed asset account. This step is essential for financial reporting, as it changes how these costs are viewed and managed. Instead of them being ongoing expenses, they’re now considered as assets that will provide value over time. This transition is important for meeting accounting standards and helps businesses accurately reflect their investment in new constructions on their balance sheets.

How to Record Entries for CIP Accounts

In addition to knowing what construction in progress accounting is, you should also know what’s involved when recording the account. Like previously stated, the construction in progress account has a natural debit balance. All the construction costs associated with building the asset will accumulate under the account using construction in progress journal entries until the project is completed and the asset is in service.

Once the asset is put into service, the construction in progress account will be credited, and the debit is transferred to property, plant, and equipment. Below we’ll show you an example of what the recording may look like for a company.

Construction in Progress Journal Entry Examples

For this example, let’s say Company ABC is the contractor and just began construction on a project for a new building. Here’s what Company ABC’s journal entries might look like during the construction process:

1) On July 18, 2019, Vendor A delivered materials to the job site and issued an invoice of $200,000:

Account Title                                                  Debit               Credit 

Construction in progress                             200,000

Accounts Payable                                                                200,000

2) On July 19, 2019, Company ABC received a bill from the transportation company for delivering the materials priced at $2,000:

Account Title                                                  Debit               Credit 

Construction in progress                             2,000

Accounts Payable                                                                   2,000

3) On July 26, 2019, Company ABC used some of its inventory in constructing the building. The inventory was valued at $1,000:

Account Title                                                  Debit               Credit 

Construction in progress                             1,000

Inventory                                                                                  1,000

4) On July 30, 2019, Vendor B delivered supplies to the job site and issued an invoice of $60,000:

Account Title                                                 Debit               Credit 

Construction in progress                             60,000

Accounts Payable                                                                 60,000

5) On August 15, 2019, Company ABC finished construction on the building and put it into service. The finance department totaled the costs at:

Vendor A invoice       200,000

Transportation bill    2,000

Inventory                    1,000

Vendor B invoice       60,000

Total                        $263,000

The journal entry would be:

Account Title                                      Debit               Credit 

Equipment                                          263,000

Construction in progress                                        263,000

Company ABC would now start to depreciate the equipment since the project finished. 

Why Do You Need a CIP Account Management Software like eSub?

Using construction management software with accounting integration like eSUB Cloud can make your business more efficient, reduce errors, and enhance productivity. It allows for streamlined financial management, automated processes, and better coordination between field and office teams, ultimately leading to cost savings and smoother operations.

Some of the key advantages for construction management using eSUB Cloud are:

  • Automated Job Costing: Streamlining the process of tracking and allocating costs to specific jobs or projects.
  • Improved Financial Tracking: Providing real-time financial insights and reports, enhancing decision-making.
  • Access to Files: Facilitating access to essential documents like timecards and change orders for both office and field personnel.
  • Security and Auditing Features: Enhancing data security and providing audit trails to mitigate risks.
  • Efficiency: Speeding up accounting processes and improving accuracy in financial reporting.

Request a demo of eSUB Cloud and learn how we can help you build smarter, better, and faster.