Construction in Progress Journal Entries

Construction in Progress (CIP) accounting involves tracking costs, billings, and revenue for long-term construction projects. The following are key journal entries for managing CIP:

Scenario: Building Construction Project

Assume a construction company is contracted to build a building for ₹2,000,000. The project is expected to take one year to complete. Below are the journal entries for various stages of the construction project.

1. Initial Costs Incurred

Particulars	Debit (₹)	Credit (₹)
Construction in Progress (CIP) A/c	500,000
To Cash/Bank A/c		500,000
(Being initial construction costs incurred)

2. Progress Billings to Customer

Particulars	Debit (₹)	Credit (₹)
Accounts Receivable A/c	600,000
To Billings on CIP A/c		600,000
(Being progress billings to customer)

3. Collections from Customer

Particulars	Debit (₹)	Credit (₹)
Cash/Bank A/c	600,000
To Accounts Receivable A/c		600,000
(Being collections received from customer)

4. Revenue Recognition (Percentage of Completion Method)

Assume the project is 25% complete at the end of the first quarter. Revenue recognized is 25% of ₹2,000,000 = ₹500,000.

Particulars	Debit (₹)	Credit (₹)
Construction Expenses A/c	500,000
To Construction in Progress (CIP) A/c		500,000
(Being costs allocated to recognized revenue)

Particulars	Debit (₹)	Credit (₹)
Construction in Progress (CIP) A/c	500,000
To Construction Revenue A/c		500,000
(Being revenue recognized for percentage of completion)

5. Adjusting Entries for Additional Costs and Billings

Assume additional costs of ₹150,000 are incurred and additional billings of ₹200,000 are made.

Additional Costs Incurred:

Particulars	Debit (₹)	Credit (₹)
Construction in Progress (CIP) A/c	150,000
To Cash/Bank A/c		150,000
(Being additional construction costs incurred)

Additional Billings:

Particulars	Debit (₹)	Credit (₹)
Accounts Receivable A/c	200,000
To Billings on CIP A/c		200,000
(Being additional progress billings to customer)

6. Completion of Construction

Assume the project is completed, and the remaining revenue and costs are recognized.

Final Costs Incurred:

Particulars	Debit (₹)	Credit (₹)
Construction in Progress (CIP) A/c	1,000,000
To Cash/Bank A/c		1,000,000
(Being remaining construction costs incurred)

Final Billings to Customer:

Particulars	Debit (₹)	Credit (₹)
Accounts Receivable A/c	1,000,000
To Billings on CIP A/c		1,000,000
(Being final progress billings to customer)

Revenue Recognition (Completion of Construction):

Particulars	Debit (₹)	Credit (₹)
Construction Expenses A/c	1,000,000
To Construction in Progress (CIP) A/c		1,000,000
(Being costs allocated to recognized revenue)

Particulars	Debit (₹)	Credit (₹)
Construction in Progress (CIP) A/c	1,000,000
To Construction Revenue A/c		1,000,000
(Being revenue recognized upon completion of construction)

Summary of Entries

1. Initial Construction Costs:

   • Debit Construction in Progress (CIP) A/c
   • Credit Cash/Bank A/c

2. Progress Billings:

   • Debit Accounts Receivable A/c
   • Credit Billings on CIP A/c

3. Collections:

   • Debit Cash/Bank A/c
   • Credit Accounts Receivable A/c

4. Revenue Recognition (Percentage of Completion):

   • Debit Construction Expenses A/c
   • Credit Construction in Progress (CIP) A/c
   • Debit Construction in Progress (CIP) A/c
   • Credit Construction Revenue A/c

5. Adjusting Entries for Additional Costs and Billings:

   • Debit Construction in Progress (CIP) A/c
   • Credit Cash/Bank A/c
   • Debit Accounts Receivable A/c
   • Credit Billings on CIP A/c

6. Completion of Construction:

   • Debit Construction in Progress (CIP) A/c
   • Credit Cash/Bank A/c
   • Debit Accounts Receivable A/c
   • Credit Billings on CIP A/c
   • Debit Construction Expenses A/c
   • Credit Construction in Progress (CIP) A/c
   • Debit Construction in Progress (CIP) A/c
   • Credit Construction Revenue A/c