Construction cost accounting is one of the most complex and high-risk operations in a corporate accounting system, especially for investors and construction companies. The aggregation, allocation, and capitalization of costs are subject not only to adjustments by... Circular 200/2014/TT-BTC In addition to Vietnamese Accounting Standards (VAS 03, VAS 15), businesses must also strictly adhere to specialized regulations on construction investment cost management. Incorrect implementation can lead to risks such as cost discrepancies, disallowance of expenses during tax settlements, or incorrect recording of asset costs. This article provides comprehensive, up-to-date, and legally sound guidance on construction cost accounting according to the latest 2025 regulations, helping accountants and managers effectively control costs and ensure financial transparency.
What is construction cost accounting?
Construction cost accounting is the process of collecting, classifying, summarizing, and allocating expenses incurred in carrying out construction activities, with the aim of creating fixed assets or completing construction products for handover to the client (contractor). Construction costs are all necessary and reasonable expenses to complete a construction project or investment project.
Key characteristics of construction costs:
- Unique, long-term projects: Each project is one-of-a-kind, and construction time often extends across multiple accounting periods, requiring the tracking of work-in-progress costs.
- Variable production locations (construction sites): The management of materials, labor, and machinery takes place in multiple locations, making it difficult to accurately track costs.
- The process is complex and involves multiple parties: Costs are incurred by both the client and the contractor, requiring separate but interconnected accounting mechanisms.
However, construction cost accounting goes beyond simply recording and aggregating incurred expenses. In the context of increasingly large investment costs, stricter legal regulations, and growing pressure to control financial performance, construction cost accounting plays a central role in cost management, project performance evaluation, and supporting management decision-making.
What role does construction cost accounting play?
Construction cost accounting plays a crucial role in the financial management of construction companies and investors:
- Determining cost and cost of goods sold: This forms the basis for determining the actual cost of a completed project, thereby calculating business efficiency and preparing quotations for future contracts.
- Budget control: Provides information comparing actual costs with budget estimates, helping management control and prevent cost overruns.
- Determining the initial cost of fixed assets: For the investor, construction cost accounting aggregates all capitalized costs to determine the initial cost of assets formed after investment, which serves as the basis for calculating future depreciation.
Because construction cost accounting serves not only the purpose of cost control and price determination, but is also closely linked to the recognition of assets, revenue, and investment efficiency, the organizational methods and accounting approaches will not be uniform in all cases. Depending on whether the enterprise acts as the investor or the construction contractor, construction cost accounting will have completely different objects of tracking, management objectives, and accounts used, requiring clear differentiation from the outset.
Distinguish between different types of construction cost accounting.
In practice, construction cost accounting is divided into two main types, depending on the role of the business:
| Type of accounting | Applicable objects | Purpose | Account |
| Accounting by Investor | Businesses that engage in the self-construction of fixed assets to support their production and business activities. | Capitalize costs to determine the original cost of fixed assets. | TK 241 (Construction in progress) |
| Contractor Accounting | Construction companies execute contracts for clients. | Determine the cost or cost of goods sold for a project in order to recognize revenue and profit. | Account 154 (Work-in-progress production costs) |
Therefore, clearly distinguishing between construction cost accounting by the Investor and construction cost accounting by the Contractor not only helps businesses choose the correct key accounting account (Account 241 or Account 154), but also ensures that costs, assets, and business results are recorded in accordance with the nature of the activity. Identifying the correct accounting type from the outset is a crucial foundation for minimizing errors in cost capitalization, project cost calculation, and financial statement preparation, while also reducing risks during tax settlements and audits later on.
Composition and classification of costs according to current regulations.
To properly account for construction costs and effectively control them throughout the project lifecycle, businesses need to understand the components of the total investment, how to classify costs according to each accounting and construction criterion, and accurately determine which costs are capitalized and which should be recorded as expenses in the current period. The following content will clarify the cost groups according to current regulations, from the perspective of investment management to financial accounting.
Construction Total Investment Structure
According to Circular 09/2019/TT-BXDThe total investment for construction (which serves as the basis for cost management) includes the following components:
- Construction Costs: Direct costs incurred to create a building, including materials, labor, construction machinery, and overhead. This is the focus of construction cost accounting.
- Equipment Costs: Purchase price of equipment, transportation costs, installation, and commissioning costs.
- Project Management Costs: The costs incurred to organize and manage the project's implementation from preparation to completion and handover.
- Construction investment consulting fees: Costs for hiring consultants for project planning, surveying, design, construction supervision, etc.
- Other Costs: Including land compensation, mine clearance, quality inspection, commencement costs, capitalized interest costs, etc.
- Contingency Costs: Contingency costs for unforeseen volume changes and price fluctuations.
Classification of costs by factors of production
In construction cost accounting, classifying costs by production factor is a fundamental step in accurately aggregating costs, serving the purpose of calculating project costs and preparing financial statements in accordance with regulations. According to Circular 200/TT-BTC, expenses incurred during construction are aggregated through corresponding cost accounts, clearly reflecting the nature of the costs and the accounting methods. The table below summarizes the main cost groups, cost content, and typical accounting methods in construction enterprises.
| Type of expense | User account | Content | Accounting |
| Direct material costs | TK 621 | The value of main materials, auxiliary materials… directly involved in the construction process. | Debit account 621 There are accounts 152, 111, and 331. |
| Direct labor costs | TK 622 | Salaries, allowances, and deductions from salaries (social insurance, health insurance, union fees, unemployment insurance) of direct construction workers. | Debit account 622 There are accounts 334 and 338. |
| Costs of using construction machinery | TK 623 | Depreciation costs for construction machinery, fuel, wages for machine operators, and other costs related to machine operation. | Debit account 623
There are accounts 334 and 338. |
| General production costs | TK 627 | Costs for on-site production management and services: Salaries of management staff, depreciation of shared fixed assets, tools and equipment, and outsourced services. | Debit account 627 There are accounts 111, 112, 152, 214, 334, 331 |
From the classification table above, it can be seen that construction cost accounting is not just about recording incurred costs, but also requires businesses to correctly categorize accounts, projects, and the nature of costs. Accurate classification and accounting of costs according to accounts 621, 622, 623, and 627 is fundamental to transparent project cost calculation, facilitating acceptance and final settlement, and mitigating risks during inspections, audits, and tax audits later on.
Which costs are capitalized, and which are period costs?
Identifying capitalized costs is a crucial step in construction cost accounting for the investor. In principle, costs are only capitalized (included in the original cost of fixed assets) if they are directly related to bringing the asset into a ready-to-use state.
Non-capitalized expenses (included in current period expenses):
- Business management expenses, selling expenses (Accounts 642, 641).
- Expenses incurred in excess of reasonable limits or expenses that have been approved for cancellation.
- Interest expenses are not eligible for capitalization (due to the prolonged construction shutdown).
Capitalized interest is interest expense that is capitalized into the original cost of a fixed asset if it simultaneously satisfies the condition that the interest expense is directly related to the investment and construction and the construction is still ongoing (not interrupted).
Budgeting and Managing Input Costs
In construction cost accounting, accurate costing is only truly effective when businesses effectively control costs from the budgeting and input management stages. From correctly determining standard rates and unit prices according to regulations to meticulously tracking materials, labor, and construction machinery, each step directly impacts the accuracy of the project cost. The following content will analyze the techniques for budgeting and methods for controlling input costs according to current regulations, helping businesses proactively prevent cost overruns and discrepancies in pricing.
Methods for determining norms and unit prices.
Circular 12/2021/TT-BXD It serves as the legal basis for preparing cost estimates and is an important data source for construction cost accounting in terms of control.
- Economic and Technical Norms: Determine the necessary consumption of materials, labor, and machinery to complete a unit of construction work.
- Method for determining unit prices: Construction unit prices are calculated based on the Norms multiplied by the prices of materials, labor, and machinery at the time and location of construction (unit prices are published by the Department of Construction of each province).
Prepare a detailed cost estimate for the project.
Detailed cost estimates are an indispensable tool in construction cost accounting management:
- Steps: Quantity surveying (from drawings), applying norms, determining unit prices (according to the Department of Construction), and calculating total costs.
- Importance: Cost estimates help establish budgets and serve as a basis for comparing actual costs. If actual costs exceed estimates unreasonably, construction cost accountants need to report this so that adjustments can be made promptly.
See more: Budget estimates.
Material cost control
To effectively control material costs in construction cost accounting, businesses need to establish a rigorous management process from proposal and procurement to issuance and monitoring of material consumption at the construction site. Key areas that need to be addressed include:
- Process: Material request (Proposal form), purchase (Contract, invoice), warehousing (Warehouse receipt form), warehouse release (Warehouse release form by project or item).
- Costing of goods sold: Common methods include the weighted average cost or the First-In, First-Out (FIFO) method according to VAS 02. Construction cost accounting requires detailed tracking for each project to ensure the accuracy of cost calculations.
After input costs have been determined through estimation and tightly controlled during the procurement of materials, labor, and construction machinery, the next crucial step in construction cost accounting is to record and account for these costs in the appropriate accounting system.
Instructions for Accounting for Capital Construction Costs (Account 241)
Account 241 – Construction in progress is a key account when accounting for construction costs using the method of the investor or the investor constructing the asset themselves.
Account 241 reflects expenses incurred during the investment process for construction projects that have not yet been completed or for major repairs of fixed assets. This account is opened in detail for each project and item.
Accounting for Fixed Asset Purchase Costs (Account 2411)
Account 2411 is used to accumulate the costs of purchasing equipment and machinery that need to be installed:
- When purchasing equipment that does not require installation: Debit Account 2411 (Price excluding VAT) Debit Account 133 (Deductible VAT) Credit Account 111, 112, 331.
- Installation and commissioning costs incurred: Debit Account 2411 (Installation) Credit Accounts 111, 112, 331.
Accounting for Work-in-Progress Construction Costs (Account 2412)
Account 2412 is used to accumulate construction costs (incurred by contractors or self-performed) and other costs related to investment:
- Construction costs incurred (from subcontractors): Debit Account 2412 (Price excluding VAT) Debit Account 133 (Deductible VAT) Credit Account 331 (Payable to contractors).
- Other expenses (Project management, consulting, other expenses): Debit Account 2412, Credit Accounts 111, 112, 338.
- Capitalized interest expense: Debit Account 2412, Credit Accounts 335, 341.
- Completion and handover: When the project is completed, inspected, and eligible for recognition as a fixed asset (according to VAS 03): Debit Account 211 (Original cost of fixed asset) Credit Account 2412 (Completion value).
Accounting for major repair costs of fixed assets (Account 2413)
Only major repair costs that increase economic benefits (increased capacity, extended service life) are capitalized (according to VAS 03).
- Accumulate repair costs: Debit Account 2413, Credit Accounts 111, 152, 331, 334.
- Capitalization completion: Debit Account 211 (Increase in original cost) Credit Account 2413.
- In cases where costs are not capitalized: Normal repair and maintenance costs are included in the period's expenses (Debit 642) or allocated (Debit 142).
After clarifying the principles and methods for accumulating and capitalizing work-in-progress construction costs in account 241 for the investor, the issue arises of how to organize cost accounting and calculate the cost of construction projects when the enterprise acts as the construction contractor. In this case, the focus of construction cost accounting shifts to account 154 – Work-in-progress production costs, where all construction costs are accumulated to record the cost of goods sold and determine business results.
The process of accounting for total expenses in account 154.
For businesses acting as contractors, construction cost accounting focuses on account 154 – Work-in-progress production costs.
Production Cost Collection
Direct costs are accumulated in accounts starting with 6 (621, 622, 623, 627) for each project and item.
Accounting for General Production Costs (Account 627)
Account 627 represents indirect costs that require allocation at the end of the period. Businesses must determine a reasonable allocation method (usually based on direct labor costs or direct material costs).
Method of accumulating costs into account 154
At the end of the period, the incurred costs are transferred to calculate the project cost.
- Transfer of direct costs: Debit Account 154, Credit Accounts 621, 622, 623.
- Transferring allocated overhead expenses: Debit Account 154, Credit Account 627.
The principle is that cost aggregation must be detailed for each project/item in order to calculate the cost accurately.
Calculate and record the construction cost.
After accumulating all work-in-progress costs at the end of the period, the construction cost accountant proceeds to calculate the actual cost of the completed project:
|
Cost = Beginning work-in-progress + Costs incurred during the period – Ending work-in-progress. |
Cost calculation transaction (Completed and handed over project): Debit Account 632 (Cost of goods sold) Credit Account 154 (Cost of completed project).
Project acceptance and handover procedures
When the project reaches the completion stage and is accepted by the Investor:
- Revenue Recognition (According to VAS 15): Debit Account 131, Credit Account 511 (Construction Revenue), Credit Account 3331 (VAT Payable).
- Transferring cost of goods sold: Debit Account 632 (Cost of goods sold) Credit Account 154.
Specialized Construction Cost Accounting and Advanced Issues
Besides basic accounting procedures, construction cost accounting in practice also gives rise to many specific situations and advanced issues, directly related to long-term construction contracts, tax obligations arising from the construction site, and handling of unapproved work-in-progress expenses.
Construction Contract Accounting
For long-term construction contracts, construction cost accounting must apply VAS 15.
- Percentage-of-Completion Method: Revenue and expenses are recognized proportionally to the level of project completion (usually based on incurred costs compared to estimated total costs).
This is then determined by the formula:
|
Completion level = (Cumulative incurred costs / Estimated total costs) x 100% |
- Handling Contract Losses: If the total estimated costs (including future expenses) exceed the contract revenue, the loss must be recognized immediately as a cost of goods sold in the period (Debit Account 632 / Credit Account 154).
Accounting for Value Added Tax (VAT) for temporary business trips outside the province.
Construction companies operating in provinces other than their head office must declare and pay temporary VAT. The temporary VAT, upon payment, is recorded in account 33312 (VAT payable using the direct method) and offset against the VAT payable at the head office.
Handling of cancelled or unapproved construction costs
Unreasonable, unapproved, or demolition costs must be excluded from capitalized costs (Account 241) or cost of goods sold (Account 154).
- Accounting for cancellation or write-off costs: Debit Account 1388 (Recoverable from the cause) Debit Account 811 (Other expenses – if not recoverable) Credit Account 241, 154 (Reduction in work-in-progress value).
Construction cost accounting is a specialized field requiring a deep understanding of both Accounting Law and Vietnamese Accounting Standards. Strict adherence to regulations on cost capitalization and cost aggregation is crucial for ensuring the reasonableness and validity of financial data.
Conclude
Construction cost accounting is a specialized field, governed by the corporate accounting system, accounting standards, and specific construction regulations. Accurately collecting, classifying, and accounting for costs at each stage of investment or construction not only helps businesses determine the precise cost of the project and the original cost of assets, but also forms the basis for budget control, financial transparency, and risk mitigation during tax settlements and audits.
Therefore, standardizing the accounting process for construction costs according to Circular 200/TT-BTC, correctly applying VAS 03 and VAS 15, and promptly updating new regulations are fundamental to the efficient and sustainable operation of construction companies and investors. In cases where businesses need to review their accounting systems, handle complex situations, or optimize construction investment costs, consulting with the expert accounting team at MAN – Master Accountant Network will save time and minimize potential risks.
MAN – Master Accountant Network is ready to partner with businesses in advising, standardizing, and improving the efficiency of construction cost accounting, based on legal compliance and aiming towards International Standards.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Editorial Board: MAN – Master Accountant Network
