Billings in excess of construction costs is reported as a current liability. Accounting presentation: Current period revenue = (% complete x Total revenue from contract) – Total revenue recognized in prior periods % Complete= (total costs to date) / (Most recent estimate of total project costs) New Accounts: - Construction in progress inventory – asset account, costs of construction are held in inventory (for % complete method, CIP inventory is carried at cost + realized GM) - Billings on Contract- contra-asset account (contra to CIP inventory -to avoid overstating the contractor’s interest in the project) Balance Sheet reporting: - Construction in process in excess of Billings is reported as a current asset. Contractor can perform according to the terms of the long term contract. Buyer is expected to satisfy the obligation. Appropriate when: - Contract specifies the amount of consideration to be exchanged and the terms of settlement. Here is the gist of it (copied verbatim from ) Percentage-of-Completion Method recognizes revenues, costs and profit as progress is made toward completion on a long term contract.
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