The operation of paying wages to employees directly involved in the process of creating, modernizing or reconstructing fixed assets is reflected in accounting as an entry in the debit of account 08 and the credit of account 70. This entry records the moment when personnel labor is transformed into the cost of a future asset, increasing its initial valuation, and is not included in the current expenses of the period. The use of this particular set of accounts is strictly regulated for those cases when the object has not yet been accepted for accounting as a fixed asset and is at the stage of unfinished construction or assembly.
The use of this correspondence of accounts requires a clear delineation of the functions of employees and the stages of work, since an error in choosing a correspondent account can distort the financial result of the reporting period. If the staff is simultaneously busy with both current activities and the creation of a new asset, the accountant is required to keep detailed records of working hours for the correct distribution of amounts. Incorrect allocation of costs can lead to an understatement of the value of the fixed asset and, as a result, to errors in calculating depreciation in the future.
It is important to understand that wiring D 08 K 70 is formed only in relation to that part of the salary that relates to the period of active creation of the object. At the moment when the facility is completely ready for operation and put into operation, all costs accumulated on account 08, including accrued wages, will be transferred to account 01. Until this moment, the amount of accruals remains “frozen” as part of investments in non-current assets, without affecting the profit of the current month through account 20 or 26.
Economic essence and regulations
From an economic point of view, this posting reflects the process of capitalization of expenses. Instead of writing off accrued wages to production costs or general business expenses, the organization increases the value of its future assets. This corresponds to the principle of matching income and expenses, since costs will be amortized (transferred to expenses) over the entire useful life of the created object, and not at once at the time of salary payment.
The regulatory basis for the application of this operation is the Chart of Accounts and Instructions for its application. Account 08 “Investments in non-current assets” is intended to summarize information on the costs of construction, acquisition and creation of non-current assets. Account 70 “Settlements with personnel for wages” reflects the organization’s obligations to employees. Their interaction in conjunction with Debit 08 – Credit 70 is a standard mechanism for accounting for the formation of the cost of fixed assets on its own.
The key point is to determine the start and end point of using this wiring. The beginning is considered to be the actual start of construction or installation work, confirmed by primary documents, such as time sheets or work orders. The end of the period when posting D 08 K 70 is applied is the date of signing the act of putting the facility into operation (form OS-1), after which salary accrual is transferred to current expense accounts or depreciation.
⚠️ Attention: You cannot include in the cost of fixed assets (account 08) the salaries of administrative personnel or employees whose activities are not directly related to the creation of the facility. Such expenses should be taken into account on account 26 “General business expenses”.
For proper registration, it is necessary that the organization’s accounting policies specify the procedure for allocating costs when combining functions. If an employee spends 50% of his time producing products and 50% building a warehouse, the accountant must clearly divide the accruals. Only the part related to construction will go on credit 70 to debit 08, the rest will fall on production accounts.
Employee assignment criteria and cost allocation
For correct wiring D 08 K 70 it is necessary to clearly identify the circle of persons whose work is paid from funds capitalized into the value of the asset. Such employees include builders, installers, design engineers (if the project is being done in-house), equipment adjusters and other specialists directly involved in the creation process. The salaries of support staff, such as accountants or security guards, are not included in account 08.
Cost allocation often requires the use of additional analytical sections. In software products such as 1C: Enterprise, for this purpose separate construction orders or construction projects are created. At the end of the month, the salaries of employees who were employed in the relevant work in the time sheet are distributed to these orders. This allows you to automatically generate the required wiring without manual intervention.
There are several distribution methods if accurate time tracking is not maintained for objects, although they are less preferable for control:
- 🔹 Proportional to the time worked indicated in the report card or work orders.
- 🔹 Proportional to tariff rates or salaries of employees employed at the site.
- 🔹 Based on estimated labor costs, if construction is carried out under a contract within the holding.
Particular attention should be paid to bonuses and allowances. If bonuses to employees are associated with the successful completion of the construction stage or commissioning of a facility, these amounts are also included in the cost of the fixed asset through entry D 08 K 70. However, current monthly bonuses, which are of a general nature, are most often attributed to current expenses, unless otherwise specified in local regulations.
Effect of posting on taxation and insurance premiums
When accruing wages to account 08, insurance premiums are also accrued along with the main amount. The posting for the calculation of contributions will look similar: Debit 08 Credit 69. This means that the cost of the created fixed asset is formed taking into account the full load on the wage fund. In tax accounting, these amounts also increase the initial cost of the object, which is important for calculating the depreciation bonus and monthly depreciation.
Unlike current expenses, amounts credited to account 08 do not reduce the taxable base for income tax at the time they are accrued. They will become expenses only after the facility is put into operation and depreciation begins. This creates a temporary difference between accounting and tax accounting if depreciation methods or useful lives differ, which requires accounting for temporary differences (PBU 18/02).
It is important to note that VAT paid on the purchase of materials and services for construction is also included in the cost of the object if it is intended for VAT-free transactions. However, the salary itself is not subject to VAT. It is a mistake to try to include “input” VAT in a transaction with credit 70, since account 70 is intended exclusively for settlements with personnel for wages and equivalent payments.
Typical mistakes when creating wiring
One of the most common mistakes is to assign to account 08 the entire salary of production personnel during periods of downtime or repairs, when the actual creation of an asset does not occur. If construction is frozen, personnel costs should be written off as current expenses (account 91.2 “Other expenses”), since they do not increase economic benefits in the future.
The second common mistake is the untimely transfer of an object from account 08 to account 01. Accountants can continue to “inflate” salaries by the cost of an already functioning, but not documented, object. This leads to understatement of depreciation in previous periods and distortion of reporting. As soon as the object has begun to be used for its intended purpose, wiring D 08 K 70 must be stopped.
The third mistake is related to ignoring analytics. If account 08 takes into account the costs of several construction projects, the lack of detail by subconto or projects will lead to the inability to correctly formulate the initial cost of each asset. As a result, depreciation will be calculated incorrectly, which may cause claims from the tax authorities during an audit.
⚠️ Attention: Do not include in the cost of operating systems (invoice 08) the costs of training personnel to work with new equipment. According to PBU, these expenses are recognized in the period in which they are incurred and cannot be capitalized.
Technical aspects of reflection in 1C: Enterprise
In automated accounting systems such as 1C: Enterprise Accounting, posting D 08 K 70 is generated automatically when performing the “Month Closing” operation or specialized processing “Salary Distribution”. To do this, it is necessary that the correct cost item associated with capital construction or installation is indicated on the employee’s card or employment document.
When setting up a cost item, select the expense type “Payment for labor in the production of products, works, services” indicating the corresponding cost account (08.03, 08.04, etc.). The system itself will calculate the amount based on the timesheet data and generate the necessary accounting records. Manual intervention is required only in case of adjustments or lack of automated time tracking.
☑️ Checklist before closing the month
To control the correctness of accruals, it is recommended to use the “Account Analysis 08” report. It allows you to see the breakdown of costs for each object and make sure that the salary amounts are exactly where they should be. If the report shows amounts on accounts 08 without reference to a specific construction project, this is a signal for additional analytical work.
Documentation and commissioning
The basis for posting D 08 K 70 are primary documents: time sheets, pay slips, bonus orders, as well as certificates of work performed (if the work is carried out on a self-employed basis). All these documents must be signed by responsible persons and have links to the relevant construction or modernization projects.
The final stage of the cycle is the commissioning of the facility. At this moment the wiring is formed Debit 01 Credit 08, which accumulates all costs, including accumulated wages. From this moment, the accrual of wages for this object stops, and the accrual of depreciation begins. It is important that the commissioning date in the OS-1 document coincides with the date of actual start of use of the asset.
| Operation | Debit | Credit | Contents of the operation |
|---|---|---|---|
| Payroll for construction workers | 08 | 70 | Salary accrued for the creation of the OS |
| Calculation of contributions | 08 | 69 | Salary insurance premiums paid |
| Commissioning | 01 | 08 | The finished OS object has been accepted for accounting |
| Depreciation calculation | 20 (26, 44) | 02 | Depreciation accrued after commissioning |
FAQ: Frequently asked questions
Is it possible to accrue wages to account 08 if the facility has not yet been completed?
Yes, it is possible and necessary. Account 08 is precisely intended for accumulating costs during the construction process. Wiring D 08 K 70 is applied monthly throughout the entire construction period until the facility is ready for operation.
Does this entry affect income taxes for the current month?
No, it does not affect directly. Amounts credited to account 08 do not reduce the taxable base at the time of accrual. They will become expenses through the depreciation mechanism after the facility is put into operation.
What to do if an employee was sick during construction?
Sick leave is usually charged to account 69 and does not increase the cost of the fixed asset. Account 08 includes only payment for time actually worked related to the creation of the asset. Temporary disability benefits are written off as current expenses or reduce the base for insurance premiums.
Do I need to keep a separate time sheet for construction workers?
It is advisable, or at least, to keep detailed records of working time by type of activity in a general timesheet. This is necessary to justify the distribution of salaries between account 08 (capital investments) and accounts 20, 26 (current expenses) in the case of combining functions.
Hidden text: Limit-fence cards are often used for control.