Construction Accounting
Handling Customer Deposits (CD) and Work In Process (WIP) in your accounting system
- The steps in the graphic below demonstrate the accounting flow for a project which has three milestone deposits required by the contract.
- A milestone may be defined in the contract as a time period (Monthly), a Phase (Contract, Framing and Rough Trades, Drywall, etc.), or any other period you wish. When you set milestones, remember that your are not the Lender or Banker on the project. Collect sufficient funds to cover all expenses for the next milestone.
- Milestone 1 Deposit = $100,000;
- Milestone 2 Deposit = $200,000;
- Milestone 3 Deposit = $300,000.
- The process outlined below shows the accounting for each milestone cycle.
The Accounting Flow using Customer Deposits and Work In Process:
Repeat the process:
- Customer makes Deposit ► DR Checking and CR Customer Deposits;
- Work is done on the Project ► DR Work In Process and CR Accounts Payable
- Pay the Accounts Payable ► DR Accounts Payable and CR Checking
- Complete Milestone ► DR Customer Deposits and CR Project Income
- Match Milestone Expenses to Milestone Income ► DR Project Cost to Build and CR Work In Process