In the world of homebuilding, understanding how to classify construction costs can significantly impact your financial reporting. One common area of confusion is the construction-in-progress account and how it relates to fixed assets. Is it a fixed asset? Not quite—but it plays a critical role in how fixed assets are ultimately recorded and reported.
What the Construction in Progress Account Represents
The construction in progress (CIP) account tracks all the direct costs of a project that is not yet complete. These include labor, materials, equipment, engineering fees, and permits. Unlike fixed assets such as completed buildings or machinery already in service, a project still under construction hasn’t started depreciating yet. That’s because the asset doesn’t deliver economic value until it’s finished.
So, while the CIP account sits on the balance sheet alongside fixed assets, it serves a different purpose. It is a temporary holding account that accumulates costs during the construction phase.
Construction Work in Progress Accounting
In construction work-in-progress accounting, these ongoing costs are not expensed immediately. Instead, they are capitalized and held in the CIP account until the project is complete. Once the asset is finished and ready to use, the balance is transferred from the CIP account into the appropriate fixed asset category, and only then does depreciation begin.
This approach ensures that your books reflect your business’s true status. Misclassifying a project as a fixed asset too early can distort your financials and create compliance issues.
Construction in Progress Account Type: What You Need to Know
The construction-in-progress account type is a long-term asset—not a fixed asset in the traditional sense—but a key part of the process of tracking and preparing assets for the balance sheet. It bridges the gap between raw project costs and finished capital assets. Treating it properly is essential for both tax strategy and financial clarity.
Final Thoughts
At Prince CPA Group, we help homebuilders and developers get construction accounting right from the start. From accurate CIP tracking to strategic asset classification, our team ensures your financials stay transparent, compliant, and built for growth. If you want reliable guidance on managing your construction-in-progress account, we’re here to help you finish strong. Contact us today for more information!
