Building operations fall into two main classes: first, where buildings for the improvement of property are erected without having any particular purchaser in view; second, where buildings are constructed for some definite purchaser. In both cases, however, an account should be opened in the ledger for each building erected, and to this account should be charged the numerous payments that are called for, the account being kept open until some time after the building is completed, in order to satisfy the owner that no liens have been or can be filed against the building.

If the building is of the first class mentioned above, the total cost on completion is transferred to the Improvements account by a simple journal entry such as follows:

Improvements .......................................

$......

To Buildings (No. and Street).........

$......

For the total cost of the above building on property No......

When building for customers, the concern may perhaps simply agree to erect the desired building, the customer engaging to pay the price, the exact amount of which may not be finally determined until the building is completed. In such cases the Construction account is treated as is Improvement account in the entry just given.

On the other hand, a concern will frequently agree to build a house for a customer for a certain amount and will then make a contract with some builder, or erect the building itself, intending to obtain in either contingency a profit on the building. In such cases the construction account is credited and the purchaser debited with the price agreed upon. Upon completion of the building, there is usually a balance on one side of the ledger or the other; if it be a credit balance, there is of course a profit, and vice versa. This balance is then carried to the Profits account, the entry in the ledger indicating that it is the profit from building operations.