Part 3 of this series of Spec & Custom Bookkeeping Overview deals with the purchase of the Land Lot (for Spec work) and the corresponding loan to pay for both the Lot and the Construction Funds to Draw.

It is recommended that you utilize a journal entry to capture the following:

  • Purchase price of the Land Lot
  • Closing Costs
  • Construction Funds to Draw
  • Previous Earnest Money paid
  • Total amount of the overall loan
  • Cash you contributed from this settlement

So, here is an example of a journal entry based on a H.U.D. settlement statement:

DebitCredit
Inventory: Home56,000Purchase price of the lot
C.I.P. – Spec2,345Closing Costs
Construction Escrow: Home180,000Construction Funds to Draw
Inventory: Home2,000Previous Earnest Money Paid
Loan Payable205,000Principal amount of new loan
Bank Account31,345Cash paid from buyer

 

Please keep in mind that the above journal entry is just one example of how this event can be recognized in the books; but please consult with your C.P.A. for your particular guidance.

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.

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