Sale of Spec Home – Income Statement Overview

It is important to have a general outline of how to handle the sales of your speculative homes (spec homes) in your bookkeeping system.

In a previous article, I discussed the Balance Sheet type of accounts that would be affected when you finally sell your speculative home that you have built from the ground up. In this article I will touch on the typical Income Statement type of accounts that will be affected by this same event.

During the course of the Spec Home build, all costs associated with this event would have been capitalized (put into some sort of Balance Sheet type of account); perhaps the name of this Balance Sheet type of account would have been something like “Works In Progress” or “Construction In Progress”.

Now, it is time to move all of these costs from this Balance Sheet account onto the Profit & Loss statement (Income Statement). To do this requires a few major steps:

1. Process a financial report that shows, in detail, all of the costs associated with this Spec Home build. Be careful to include all dates, from the lot purchase, all the way to, and perhaps beyond, the date of sale of the Spec home.
2. Download this detailed financial report onto a spreadsheet and from here, you need to ascertain and split out the different types of costs, which are typically:
   1. Materials
   2. Labor
   3. Interest charges on loans
   4. The cost of the purchase of the Lot can also be included in this close-out but I typically handle this by its own journal entry alone.
3. Once you ascertain all of the total Materials, Labor and Interest charges, then you can post the following journal entry to move these costs from the Balance Sheet to the Income Statement (Note: we are going to assume the total expenditures were $100,000):

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.