Forecasting for new construction Follow

If your new business involves the construction of a facility such as a factory, warehouse, or storefront, then essentially the costs of construction will result in an asset when the project is completed.

Accounting principles allow you to consider some of these construction costs themselves as an asset. You can, for example, treat your materials and equipment costs as assets. (On the other hand, labor, architect fees, and licensing are usually entered as expenses.)

The main thing to consider is that, while construction is in progress, your asset is not depreciating. Once the facility is completed and you begin using it, however, depreciation begins. So we recommend using two asset entries to represent that change.

Entry #1: Construction costs as an asset

1. In the Forecast tab, click Assets:
   
2. Click the Add Asset button near the top-left of the Assets table:
   
3. In the first overlay, give this asset a name reflecting your construction costs. Click Price or Next to continue:
   
4. Select One-time amount. Enter the total amount of costs you're forecasting, and choose the month construction begins. Click Type or Next to continue to the final step:
   
5. Choose Long term as the type of asset, and select Forever (do not depreciate) from the pull-down menu. Then choose Yes, I plan to sell it. Enter the full amount again, and choose the month in which the construction will be completed:
   
6. Click Create Forecast Item to add the asset to your forecast:
   
   

   Note: This may seem odd since we aren't actually selling construction costs. But we'll represent this value again in the second asset entry that represents the finished project.

Entry #2: Finished project as an asset

1. In the Forecast tab, click Assets:
   
2. Click the Add Asset button near the bottom of the Assets page:
   
3. In the first overlay, give this asset a name reflecting the finished project. Click Price or Next to continue:
   
4. In the first overlay, choose One-time amount. Enter the full amount of the project's value, and choose the month in which the project is completed:
   
5. Choose Long term as the type of asset, and assign a useful life to the asset. (For more on this, read Determining the useful life of a long-term asset.)
   
6. Lastly, indicate whether you plan to re-sell this asset in the future. Click Create Forecast Item:
   

As shown in the table below, the asset value of the construction costs now carries forward without depreciation until the project is complete. Then the finished project begins to depreciate:

Notes:

• Since an Asset entry represents a large purchase, you may need a corresponding Financing entry to represent the source of the funds.
• Keep in mind that ongoing maintenance, painting refreshes, landscaping upkeep, etc., on the finished property will be considered Expenses.