Tallmont CIP Accounting Explained: How Construction in Progress Should Actually Work
CIP accounting (Construction in Progress) is the practice of capitalizing development costs — land, hard costs, soft costs, financing interest, and fees — on the balance sheet as an asset under construction, instead of expensing them, until the project is complete. Done right, it’s what lets a developer see true project cost by category, against budget, at any moment.
If you develop or build property, this one accounting concept determines whether your books tell the truth. Get it right and you can see exactly what a project has cost, by category, against budget, at any moment. Get it wrong and your income statement shows fictional losses while your real project costs hide across a dozen expense accounts.
The core idea
Development costs are not period expenses. When you buy land, pay an architect, draw on a construction loan, or pay interest during the build, you’re not “spending” in the P&L sense — you’re investing in an asset under construction. Accounting standards require those costs to be capitalized on the balance sheet as CIP until the project completes, then transferred to the finished asset (and, for income property, depreciated from there).
The P&L during construction should show your operating reality — fee income, overhead — not the build itself.
Where generic books go wrong
A standard chart of accounts gives development costs nowhere to live, so bookkeepers improvise:
- Construction draws land in a “Construction Expense” account — on the P&L
- Architect and engineering fees disappear into “Professional Services”
- Construction-period interest merges with corporate interest expense
- Legal fees for a land closing sit beside the office’s legal retainer
The consequences: build-phase statements that show deep artificial losses, a balance sheet that understates the project, and no way to answer the question every lender and partner asks — what has this project actually cost, by category, against budget?
What a real CIP structure looks like
The fix is architectural. A construction-ready chart of accounts reserves a dedicated CIP block on the balance sheet, structured the way developers, lenders, and equity partners already think:
- Land — acquisition and related costs, isolated from day one
- Hard costs — construction, contingency, FF&E: the categories that map to contractor pay applications and draw requests
- Soft costs — design, engineering, legal, municipal, taxes, insurance, marketing — and, critically, financing interest by capital-stack layer (senior, mezzanine, owner), paid and accrued tracked separately
- Fees — development and guarantor fees, split by how they’re paid
- Carry and reserves — operating and interest reserves by the entity that holds them
Every account maps to a section of the development budget — so the ledger mirrors the pro forma, transactions classify themselves, and budget-vs-actual comes straight from the GL.
The multi-entity wrinkle
Development projects usually live in layered structures — project entity, holding company, SPE — and capitalized costs often need to land in a different legal entity than the one that paid them. Without dedicated CIP transfer accounts, those movements happen through tangled intercompany journals nobody can audit. With them, every dollar that moves up the chain has a documented path.
What it changes in practice
We implemented exactly this structure for a multi-project development group — the full design is in our CIP case study. The practical differences:
- Draw reconciliation stopped being a monthly spreadsheet project — the ledger matches the draw schedule
- True project cost became a report: land / hard / soft / fees / carry, versus budget, on demand
- Financial statements started telling the truth — operating performance visible, development investment on the balance sheet where it belongs
- Interest by financing layer became a first-class number instead of an analysis project
The takeaway
CIP accounting isn’t an exotic technique — it’s the correct treatment, and most construction books simply don’t do it. If your build-phase P&L looks like a disaster it isn’t, or every draw request turns into archaeology, the chart of accounts is the root cause.
We design and implement construction-specific charts of accounts as a core service — here’s how it works, or book a free books review and we’ll assess yours.
Want this level of thinking on your books?
Thirty minutes, your current setup, and a candid read on what it would take.