Bookkeeping for Spec (speculative) and custom homes can be done rather simply or with great complexity depending on your needs.

Spec homes typically are funded by construction draw loans and thus all moneys (predetermined by the loan amount) coming in are applied against that loan (or escrow account depending on your bookkeeping philosophies).

Custom homes are typically funded by the owner and thus, from the builders perspective, all moneys coming in are probably spent right away on materials and labor costs and thus, for most practical purposes, can be classified as income (an important exception here being for year-end-close tax filing purposes depending on guidance from your C.P.A.).

Moneys spent (labor, materials, etc.) on the construction of a spec home are going to be capitalized into a balance sheet asset account, typically called Construction in Progress. The recognition of these expenses (for profit and loss purposes) does not occur until the spec home actually sells. So, until this occurs, a spec home is really just inventory for the home builder and not so much a fixed asset.

Moneys spent on the construction of a custom home probably can be just expensed (for profit and loss purposes) in your books. This is mainly if you are ALSO recognizing all moneys coming in from the custom home owner as income. Remember, a custom home is already sold, by contract, to the owner (your client), so your obligation here is to simply complete the job to the owner’s satisfaction and not worry about actually selling the home on the market.

What I mentioned above is just the beginning of bookkeeping for custom and spec homes work. You must have plan in place first prior to actually engaging in this type of bookkeeping, otherwise bookkeeping for spec & custom homes can go from organized simplicity to a runaway tangled web of complexity in a short amount of time.

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.