Originally posted by @Eric M.:
J, came across this post from last year and for the first time I am running into a project that significantly overlaps tax years.
I use your CoA for Quickbooks and your general Cogs accounting technique. Can you give a bit more detail about how you General Journal Cogs over to a WIP account at year end?
I don't have any experience with WIP. You are talking about moving the Cogs to the balance sheet? If so, to be specific, do you create separate WIP asset accounts for each COGS account, or can you just accumulate all your COGS for a property and put it in one WIP sub account under the Main property asset account?
Thanks
Hey Eric,
This is how my accountant (and therefore I) do it...
1. Create a "Fixed Asset" account called "WIP" (Work in Progress) or "Flip Inventory" (this is the account used to move the COGS to in order to move it off the P&L
2. Create a "Cost of Goods Sold" account called "WIP Reclass for Year End" (this the account account used to offset the COGS moved to the balance sheet)
3. On December 31 of the tax year, do a General Journal entry that moves the total amount of COGS from flips in progress onto the balance sheet (specifically, credit the WIP Reclass account and debit the Flip Inventory account). If you want, you can do a separate journal entry for each project in progress. Here's an example of what the journal entry looked like on 12/31/2019 for the two projects I had in progress in one of my companies:
In this case, I was $84K into my 21st Street project (not yet completed) and $176K into my N Morgan project (not yet completed).
Now, when you run a P&L through 12/31, you see that these two amounts are credited back to the COGS, so these costs aren't recognized in that tax year. And you'll see them show up as inventory on your balance sheet.
4. On January 1 of the following year (the next day), you reverse the journal entry to move those projects back to COGS from inventory. Like this:
Let me know if there's anything that doesn't make sense there!
