How to accommodate my own house construction costs in gnucash accounts?

[DaveC49]

Hi Yaros,

Your house would be regarded as a Fixed Asset i.e. it is retained and
produces benefits for you for a period generally much larger than a single
accounting period (normally annual for personal finances). In this case the
construction costs would be regarded as the purchase of an asset rather than
an expense

Expense accounts in accounting terms are temporary accounts which are used
to record expenditure on items which are consumed during the accounting
period. If you change the accounts you have setup as expense accounts to
asset accounts under the Fixed Assets heading e.g.

Assets:Fixed Assets: House:
                                                        Construction Costs:
                                                                          
Materials:
                                                                          
Labour:
                                                        Market Value
Adjustment:

  etc.   When you purchase materials or pay suppliers you debit the
appropriate house asset account and credit whichever Asset:Bank account  the
funds came from.

When you have completed the construction, the value of the asset House to
you  will hopefully be more than the sum of the costs of its construction
and the cost of the land on which it was built. You could record the
difference between the costs of your house and its market value as a debit 
in an adjustment account as shown above.  Where do you put the corresponding
credit of the double entry transaction? Income accounts like Expense
accounts record changes in Equity for the current accounting period but in
this case you are not going to realize the income until you actually sell
the house. The best approach to handle this would be to create a sub account
of Equity

Equity: House: Unrealized Gains and Losses

and credit the difference between the estimated market value and your costs
to this account. Periodically as the market value changes you can record
those changes as corresponding adjustments to your House Asset account
(Db/Cr) and the Unrealized Gains and Losses account (Cr/Db). 

The final adjustment when you actually sell the house should reduce the
balance of this House: equity account to 0, your House Asset account to 0
and hopefully a healthy increase in your Asset:Bank account (on which
capital Gains tax may apply if relevant where you live)
.
As Mike suggested you could keep a separate set of books for the
construction phase and simply close (transfer) the balances to your personal
accounts on completion.  This approach is easier if you have a single bank
account which is only used for the House costs as it simplifies the transfer
of funds between your personal accounts and the house account in a separate
set of books. If you are drawing on several personal accounts it is possibly
easier to keep it in the same file as your personal accounts. 

This is a general approach and assumes the house is for your personal use
and there are no tax or other regulatory implications. If it was a business
proposition, the approach would generally be the same but is more likely to
be subject to tax requirements etc. and be affected by the business
structure which may modify the treatment.

David




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