If you are a building contractor or developer, you may build and sell spec houses.
When selling a spec home, you must record several transactions:
The selling price of the home
The pay-off of the construction loan or note
Other closing costs for items such as real estate commissions, title fees,
credits to the seller, credits to the buyer, and so on
The transfer of the capitalized costs of the home out of an asset account
(Development Costs) to a cost of goods sold account
This method uses four separate transactions and a "dummy" checking
account named Closing Account. The dummy account keeps dummy entries out of
your real checking account and helps you avoid confusion when reconciling your
real account. The balance in the dummy account will be zero if you properly
enter all transactions dealing with the sale of a home.
Before completing the following steps, you should make sure you have created
these accounts in QuickBooks:
A "dummy" checking account called Closing Account.
An "other asset" account called Development Costs.
A "cost of goods sold" account called COGS-Homes.
A liability account called Construction Loan.
To do this task
Create a sales receipt for the sales price of the home.
The first line item should be a service item called "home sale,"
where the amount equals the selling price of the home.
On the next two lines of the sales receipt, you need to transfer the
capitalized costs from your Development Costs asset account to your cost of
goods sold account (COGS-Homes).
You do this by entering two line items which offset each other: The first
line item is a positive number, and decreases the amount in the Development
Costs account by the amount of your construction costs. (Because you are
selling the home, you want to decrease the asset account down to zero.) The
second line item is a negative number, and increases your cost of goods sold
account by an equal amount. (This transfers the costs of construction to your
The net amount of the receipt is for the sale price of the home, which you
deposit directly into the dummy checking account (Closing Account).
To create a general journal entry for the construction loan payoff, go to the Banking menu and click
Make General Journal Entries. Debit the Construction
Loans liability account, and credit the Closing Account dummy checking
This decreases the balance in each account.
Enter the other seller costs and credits from the closing of the home sale
by writing a dummy check from the Closing Account checking account. (At the
actual closing, checks were written directly to the other parties, so you want
to create and not print a dummy check.)
Make the check payable to an "other name," such as Other Closing
Write the check for the net amount of all remaining closing costs and
In the Items tab of the check, enter costs for real estate commission fees,
recording fees, title fees, and so on. If you as the seller gave credits to the
buyer, enter these as negative amounts.
The balance in the Closing Account should equal the net proceeds to the
Write another dummy check from the Closing Account, depositing the net
proceeds to the seller to a real checking account.
If you follow this procedure, you may want to use the following reports to
report on your home profits:
Use this report:
Profit & Loss
Income, expenses, and net profit or loss
Assets, liabilities, and equity
Job Profitability Summary
Total actual cost and total actual revenue for each home (customer or