Accounting for Work in Progress

Accounting
1

We are a small housebuilder and currently have a project which was not quite finished at the end of our financial year. How do I account for this so the P & L does not show a huge loss this year and a huge profit next year.

I am aware of the WIP Nominal code and have valued WIP at the year end - however I am uncertain as to what would be the opposite journal entry - can anyone advise please.

2

Assuming you had no opening WIP, then you would debit WIP in the balance sheet and credit cost of sales. This has the effect of moving the value of WIP out of the P&L and into the balance sheet as an asset. The purchases code to use would be wherever you initially allocated the costs.

Note that you can’t include the cost of your own time when valuing WIP.