Balance Sheet for Construction
Balance Sheet for Construction in process (CIP) denotes the expenses linked with an ongoing development of a long-term asset.
It is recorded as a non-current asset on the balance sheet, under the property, plant, and equipment (PP&E) section.
The CIP account has a debit balance, and the amount in the account represents the total cost of the asset that has been incurred to date.
The CIP account is updated as the asset is constructed. When materials are purchased, labor is incurred, or other costs are incurred, they are debited to the CIP account.
When the asset is completed and placed into service, the balance in the CIP account is transferred to the appropriate PP&E account.
The following are some of the costs that can be included in the CIP account:
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Materials
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Labor
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Overhead
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Interest
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Depreciation
The amount of detail that is included in the CIP account will vary depending on the company and the size of the project.
For small projects, the CIP account may simply be a general ledger account that tracks the total cost of the project. For larger projects, the CIP account may be broken down into more detail, such as by materials, labor, and overhead.
The CIP account is an important part of the balance sheet because it provides information about the company’s investments in long-term assets. The CIP account also helps investors and creditors assess the company’s financial health.
Here is an example of how CIP might be presented on a balance sheet:
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Property, plant, and equipment
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Construction in progress $100,000
In this example, the company has $100,000 of assets that are still under construction. These assets will be transferred to the appropriate PP&E account when they are completed and placed into service.
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