What is CIP in accounting?

All different types of businesses use CIP accounts. They are necessary for any entity taking on the construction of a major building project. While they can be used in just about any industry, here are some common industries that utilize CIP accounts:

• Healthcare

• Manufacturing

• Retail

• Aviation

• Science, research, and develop

• Aerospace

• Technology

To use CIP accounting, take these steps:

• Figure out the expenses considered to be CIP. The first step is to determine which expenses are CIP. These are costs related to the construction project's preparation and progress. Common items in this area include the following:

  • Supplies used for construction

  • Vendor purchases and fees

  • Labor

  • Transportation services

  • Installation costs

  • Fees for licenses

  • Fees for permits

  • Interest accrued on loans concerning the project

  It is also important to record these items during the accounting period. Don't wait to document your CIP expenses; this can lead to errors in accounting and possible regulatory violations.

• Outline each expense. It is important to identify each expense related to the construction process. You should reference invoices, receipts, and inventory reports to do this.

  Being accurate with these figures is crucial to avoid any accounting errors. Calculations of these items and adequate documentation are also required if the company gets audited.

• Log all expenses. To do this properly, you must enter all expenses from the project as debits in the CIP account and log them as credits in accounts payable.

• Make the transfer of the entered CIP amount once the project is complete. Once the assets are in a functional state, you can then transfer expenses for those assets to the proper fixed asset account to track future costs.