In this video, I want to go over accounting for a property that you own and are developing yourself. In this example, you are buying the land and developing the property yourself rather than constructing a building on the property for another developer. I will show you how to account for the construction in progress in QuickBooks.
If you’ve watched any of my other videos, you know that when you are building a property for somebody else, you put it on the Profit and Loss statement, in direct costs or in the Work in Progress Schedule, on the balance sheet and so forth.
For a property that you’re developing yourself, you need to do things a little differently. Onee thing I like to do, is to treat all the expenses–all the items–as expenses on the Profit and Loss statement. You might put them into direct costs, direct materials or direct labor. I go over it in a little bit more detail in this tutorial by putting them all into the actual cost codes on the P&L.
If you put them in the cost codes or if you put them in direct cost, they will show up on the P&L. As an example, we take al look at a fictional job on 123 Commerce Street done by A.B.C. Construction Company. They own the land they are building the building on and we are able to see what the expenses are. There’s no income to input because the income will be reported once the property is sold.
You can put the expenses on the P&L, which will give you an idea of how much you’ve incurred in expense, but it’s not actually the correct way to do it because it’s actually inventory and needs to go on your balance sheet. So, at the end of each month, you’ll need to make an adjusting entry to remove them from the P&L. If you have other software that is specifically for construction or development, you don’t have to go through this process, but QuickBooks is not specifically made for this situation so I’m just showing you a work around you can do if you are using QuickBooks.
Don’t hesitate to get in touch if you have any questions or concerns.