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Accounting Complexities in Speculative Building and House Flipping

Writer's picture: Full Moon BookkeepingFull Moon Bookkeeping

When it comes to accounting for speculative building and house flipping, things get complicated. Unlike client contract scenarios or completed contract projects, these endeavors introduce a higher level of intricacy. Here's why:

Assets in Transition: When you purchase a property for resale, it immediately becomes a current asset, much like inventory. The costs incurred during construction or renovation are also treated as current assets, often referred to as Construction in Progress (CIP) or Work in Progress (WIP).

Funding Variety: These projects can be funded through various means, including equity, loans, or even customer deposits for pre-sold properties. However, revenue recognition only occurs when the project is sold.

Balance Sheet Emphasis: The accounting for speculative building and house flipping revolves around Balance Sheet transactions:

  • Money out: Money spent on property acquisition and project costs increases the asset side of the balance sheet.

  • Money in: Incoming funds can represent either liabilities (such as loans and customer deposits) or equity (self-funding), typically residing in the bank.

The complexity emerges from the substantial activity on the Balance Sheet. It demands meticulous tracking, reporting, and accounting to ensure a seamless transition to the Profit and Loss statement upon project completion or sale. Moreover, the purchase and sale of these properties involve intricate transactions, featuring countless variations and scenarios to consider. These may include vendor payments from escrow, accounting for closing costs, interest accrual, loan settlements, and the need to recognize all these aspects in a way that ensures clear and understandable reporting from the accounting system.

At Full Moon Bookkeeping, we specialize in assisting with speculative building accounting. Our virtual support complements your in-house team, leveraging the power of QuickBooks Desktop to provide tailored reports and detailed financial breakdowns related to job costing.

Ready to streamline your accounting processes? Give us a call today.


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