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L
lindak1119
Level 7
October 16, 2018
Solved

If we made a profit from a house we flipped and sold, what account/category should I record the profit to?

  • October 16, 2018
  • 3 replies
  • 7 views

We just sold a house and the deposit from that came through in our bank transactions on QBO, but I don't know what account/category to put it in. So when we purchased the house (weren't using any accounting software at the time, nor was I employed then), it would have been considered an asset. But now that we are talking about a profit- I am seeing 3 different types of accounts that I could add the transaction to: Income (sales), Accts Receivable, or just our bank acct. 

In real life, we deposited it into the bank acct on file. But in QBO should I be depositing to that bank acct, A/R, or into an Sales Income?

If I'm thinking correctly, would rule out A/R because it wasn't something that was owed to us or that we billed. And maybe adding it to the bank account would be futile/invaluable because the purpose of QB is to track your business expenses and income to charted accounts for an overall picture-not sure. No accounting background here.


Thanks!

Best answer by qbteachmt

There is no Depreciation for Flipping property.

You post the Cost of the property and All Improvements as Asset = Construction In Progress or Work In Progress. That includes construction loan interest and any Costs for labor, materials, permits, etc.

Once the project is Done, you now see your Total invested.

When the project Sells, this is Gross income. The Deposit to banking is Income. You can do this with a Sales Receipt.

Additionally, you will Clear out that Asset account balance for your costs, to Zero, and that entry is put to Cost of Goods Sold, for the same date as the Sales.

And now your Reporting show the profit: Gross income minus costs, at the bottom of the P&L.

Don't enter Profit. Enter Gross = everything in full.

3 replies

qbteachmt
qbteachmtAnswer
Level 11
October 16, 2018

There is no Depreciation for Flipping property.

You post the Cost of the property and All Improvements as Asset = Construction In Progress or Work In Progress. That includes construction loan interest and any Costs for labor, materials, permits, etc.

Once the project is Done, you now see your Total invested.

When the project Sells, this is Gross income. The Deposit to banking is Income. You can do this with a Sales Receipt.

Additionally, you will Clear out that Asset account balance for your costs, to Zero, and that entry is put to Cost of Goods Sold, for the same date as the Sales.

And now your Reporting show the profit: Gross income minus costs, at the bottom of the P&L.

Don't enter Profit. Enter Gross = everything in full.

    U
    username189084
    October 16, 2018
    @qbteachmt revisiting an old question. The sale of this home happened before we had QB up and running. I'm just now going through and adding  it, what is the best way to record this? since we didn't have an asset account set up for this property and don't have any of the expenses therefore recorded in it, I can't process it as a WIP->cogs->sold. I mean I guess I technically could still create it as  a WIP, but it doesn't sound very fun since i've got so many other *already* sold homes to enter that I don't have receipts or bills for because they took place before my employment.
    qbteachmt
    qbteachmt
    Level 11
    October 16, 2018

    "The sale of this home happened before we had QB up and running. I'm just now going through and adding  it, what is the best way to record this?"

    Debit COGS for the total invested

    Credit Income for the sale price (it would be a bit more complex than this; work from the Closings)

    Debit/Credit Equity for the difference

    "I can't process it as a WIP->cogs->sold."

    Yes, you can and should still post COGS.

    "I mean I guess I technically could still create it as  a WIP"

    There is no WIP for something Not in Progress.

      S
      SCrawford
      October 16, 2018
      You are on the right track! When you purchase something that will be sold, it goes into an asset account. For most, that would be something like Inventory Asset. Once that item is sold, it reduces the asset account and then splits between two accounts: Sales Income and Cost of Goods Sold. The difference between these two accounts is the profit. And yes, it still does go into your bank account too.
      However, if something were purchased that were not originally bought to be sold, it would likely go into a different asset account like Fixed Assets (machinery & equipment, etc.) or Capital Assets. You still reduce that asset account when the asset is sold.
      If you are dealing with depreciation, it gets a little more complex, though.
      When equipment that is used in a business is sold for cash before it is fully depreciated, there will be two journal entries:
      The first entry will be a debit to Depreciation Expense and a credit to Accumulated Depreciation to record the depreciation right up to the date of the sale (disposal).
      The second entry will consist of the following:
      1. Credit the account Equipment to remove the equipment's cost.
      2. Debit Accumulated Depreciation to remove the equipment's up-to-date accumulated depreciation.
      3. Debit Cash for the amount received.
      4. Get this journal entry to balance. If a debit amount is needed, it is a loss on the disposal. If a credit amount is needed, it is a gain on the disposal.
      N
      NellieCruise
      December 30, 2018

      Is this true for new construction as well? If we build from the ground up, all expenses including lot clearing, permits, utility charges and service bills, subcontractors, job materials, equipment rentals, due diligence and earnest monies, all go into the same Asset Account? How do I "clear" the asset account once I receive the money from the sale of the new home?

      qbteachmt
      qbteachmt
      Level 11
      December 31, 2018

      Please pardon my ignorance, how do I offset WIP to COGS? Does this automatically happen once I enter my gross income? 


      We don't know which QB program is in use or How it is in use. I use Items for this, in QB Desktop, and the items I link to WIP includes the labor and service and noninventory products and services that I use in the estimate for managing the scope of the work to be done; for the Purchase orders and purchase details, to manage if the project is on track and on budget. And, on the Closing entry, which I do with a Vendor Name = Close WIP. You want to Job Track which project is now zero in WIP, and the offset it to COGS. I do this on a Bill, using that vendor name, using the two other charge items; the positive is to COGS and the negative is to remove WIP $. This gives me a $0 bill = just for the entries for job reporting, not an actual AP event and not a real vendor.

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