Recording an Asset Under Construction and Its Entry Into Service

Quick answer. A fixed asset unfinished at year-end is tracked in account 23 "Assets under construction", as spending is committed. At entry into service, account 23 is cleared by a credit and the asset is transferred to account 21 (tangible) or 20 (intangible). Depreciation starts on that entry-into-service date, never before.

You build premises, install a production line or develop in-house software, and the financial year closes before the work is finished. The question comes up at every balance sheet: should this spending go to expenses, or be capitalised? As long as the asset is unfinished, it is not depreciated and does not yet sit in its final account. The French general chart of accounts provides an intermediate category for this phase: account 23.

In the files of PMEs that invest, the most frequent frictions are not about the principle but about timing: on what date does the transfer happen, and therefore from when does depreciation run. An error of a few months on the entry into service shifts the whole depreciation charge and can distort the taxable result. This article gives you the method, the entries and a worked example.

An asset under construction is a fixed asset unfinished at the closing date: a building, a technical installation or a development still in progress. In accounting terms, it reflects spending already committed for an asset that has not reached its intended working condition.

The dedicated account is account 23 "Assets under construction", provided by the French general chart of accounts (ANC regulation no. 2014-03). It breaks down mainly between:

• account 231 for tangible assets under construction (building, equipment being assembled);
• account 232 for intangible assets under construction (software or website developed in-house).

Spending is recorded as it is committed, which lets you track the investment without diluting it into the year's expenses. The logic mirrors the one set out in our article on accrual accounting and its impact on cash: the spending is matched to the asset it funds, not to the payment date.

Account 23 or advances: do not confuse them#

Account 23 records work actually committed on your own asset. Sums paid to a supplier before performance, by contrast, are advances and down payments on fixed-asset orders. They go through separate accounts:

In practice, a down payment in 238 is later cleared and reposted to 231 once the corresponding work is performed. Confusing the two distorts the tracking of progress and the reconciliation with supplier invoices.

Here is the procedure we apply on investment files, from the first work invoice to the opening of the depreciation schedule.

1. Post each cost to account 23. As soon as a directly attributable cost is committed (work, equipment, services), debit account 231 or 232. The VAT on the spending is deductible under the ordinary rules if your activity is taxable.
2. Isolate advances in 237 or 238. A down payment made before performance is recorded as an advance, then cleared in favour of account 23 once the work is done.
3. Track progress until completion. Accumulate all directly attributable costs committed to bring the asset to its intended working condition. By option, borrowing costs over the construction period may be added to the asset's cost.
4. Date the entry into service. At completion, set the date on which the asset is ready to operate as intended. This is the trigger for the transfer.
5. Transfer from account 23 to the final account. Clear account 23 with a credit and debit account 21 or 20 for the total entry cost.
6. Open the depreciation schedule and document. Depreciation runs from the entry into service, over the asset's own useful life. File the transfer voucher in the fixed-asset records.

Entry cost: what goes in it#

The asset is recorded at its cost, which includes the directly attributable costs committed to bring it to its intended working condition (French general chart of accounts). In practice this covers the price of the work and materials, the labour allocated, and the technical services required.

Borrowing costs are a special case. The chart of accounts allows them, by option, to be added to the asset's cost over the construction period. This is a method choice: it increases the capitalised value and the depreciable base, instead of expensing the interest immediately as a financial charge. The choice must be consistent and disclosed in the notes.

Depreciation starts on the asset's entry-into-service date, not on the date the spending is committed. As long as the asset sits in account 23, that is, as long as it is under construction, it is not depreciated.

This rule is vigilance point number one. An asset that has stayed several months in account 23 has generated no charge, which is normal. The depreciation schedule opens at the moment of transfer, over each asset's own useful life. We never set a default duration: fittings, a machine and software do not have the same pace. To build and justify that schedule, see our method in the article building and justifying a depreciation schedule.

Our reading#

The real issue is not the account to use, which is clear, but the entry-into-service date. It governs both the start of depreciation and the matching of the charge to the right year. On sites that span two financial years, we systematically ask for an acceptance report, a completion certificate or a dated entry-into-service note. Without a document, the date is open to challenge, and so is the resulting depreciation charge.

Take a PME having technical premises built. Figures are rounded for readability.

During the work (year N), a down payment of 30,000 then work invoiced for 120,000:

At the close of N, account 231 shows 150,000 of assets under construction. No depreciation is recorded, as the asset is not in service.

At entry into service (year N+1), the premises are accepted and ready for use:

Account 23 is cleared, the asset now sits in account 21, and depreciation runs from the acceptance date. The charge is computed over the useful life retained for this type of construction, set in the depreciation schedule.

In practice#

We keep a tracking table per project, reconciling supplier invoices, advances and the balance of account 23. This reconciliation, done at least at each close, avoids two frequent pitfalls: a down payment left in 238 that is never cleared, and work expensed when it should have joined account 23. The year-end closing entries are the right moment for this check.

The most costly risk is not accounting, it is tax. Work spending wrongly expensed, instead of being capitalised in account 23, reduces the year's result improperly. Conversely, starting depreciation too early, before entry into service, anticipates a charge not yet due. Both situations draw attention in a tax audit, because they shift the taxable result from one year to another.

A second, more discreet point: later spending on an asset already in service does not return to account 23. Depending on its nature, it is either capitalised as a component or an improvement, or expensed if it simply keeps the asset in working order. Account 23 only serves the initial construction phase.

• Entry into service is a date, not a formality: secure it with a dated document.
• Advances (237/238) are not assets under construction (account 23): do not let them blur in the tracking.
• Adding borrowing costs is a method option, to be applied consistently and disclosed in the notes.
• A prepaid expense is unrelated here: if you prepay a recurring service, see instead the treatment of a prepaid expense in account 486.
• On a multi-year project, have your chartered accountant validate the tracking of account 23 at each close.