The category of construction in progress includes projects currently under development or under construction. In order for cash flow management to be effective, it is necessary to understand exactly how much costs are associated with this project.
Construction work in progress is a combination of two types of investments in this project:
- purchase of construction materials used in the implementation of the project;
- the cost of labor remuneration.
This project is being considered in full, including preparatory work, that is, from the very beginning to the end of the implementation period. Therefore, you should not neglect the WIP indicator, since it is key in construction companies and is used to assess the condition and monetary results of planned work.
For what purpose is construction in progress taken into account
Construction projects are among the most difficult to implement, as they require planning and careful analysis at all stages of implementation. Here, the main part of ensuring a financial project is accounting for construction in progress.
This method involves cost monitoring, especially important during the long-term project period. Reports are compiled for this type of activity. This is a direct necessity, as it allows you to clearly track:
- items of expenditure;
- income;
- assets at the time of construction work.
The main reasons why it is necessary to prepare a report on construction in progress are:
- cost control;
- financial statements submitted on time;
- compliance with the basic principles of accounting;
- receiving tax benefits;
- assessment and monitoring of construction.
It is necessary to monitor the construction in progress due to the above factors. This practice provides the project with a positive result.