Audit of Construction and Real Estate Industry Practice Test 2026 – The Complete All-in-One Guide for Exam Success!

Work-in-progress is an asset, not a liability or revenue item. Where it sits on the balance sheet depends on the purpose of the project and the accounting framework’s rules for inventories vs construction in progress.

If the project is being developed for sale in the ordinary course of business, the costs incurred to date are treated as inventory. They are carried as an asset within the inventories section, typically measured at cost with a net realizable value test. This reflects that the unfinished work is part of the stock the company intends to sell.

If the project is being developed for use or for a long-term investment by the company (not for sale in the ordinary course), the costs accumulate in a construction-in-progress account, which is presented as an asset in the non-current section (often as part of property, plant and equipment). This mirrors that the asset will be used to generate future economic benefits and will be reclassified once finished.

Thus, work-in-progress is shown as an asset, either as construction in progress or within inventory, depending on the framework and the intended use of the completed project.