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Accounting for Long Term Contracts

In: Business and Management

Submitted By jgreco3
Words 277
Pages 2
Percentage of Completion Method - Calculations

% Complete = Costs incurred to date Most recent estimate of costs |

Revenue (or GP) to be recognized to date = % complete x Est. Total Revenue (GP) |

Revenue (or GP) to be recognized to date Revenue (or GP) recognized in prior periods= Revenue-period revenue (or GP) |

Journal Entries for Percentage of Completion

To record cost of construction:

Construction in Process XXX Materials/Payables/Cash XXX

To record progress billings:

Accounts Receivable XXX Billings on Construction XXX

To record collections:

Cash XXX Accounts Receivable XXX

To Record Revenue, GP, Completion, and expense:

To Recognize Revenue and GP (dr.) Construction in Process (GP) XXXX Construction Expenses XXXX (cr.) Revenue – LT Contracts XXXXX

Record Completion of Contract: (dr.) Billings on Construction in Progress (FULL BILLING AMT) (cr) Construction in Process (FULL CIP AMOUNT)
Balance Sheet Reporting:

CIP & Rec. Profit > Billings = Current Asset Billings > CIP & Rec. Profit = Current Liability

Completed Contract Method

Billings on Construction in Process XXXXXX Revenue – LT Contracts XXXXX

Costs of Construction XXXXXX Construction in Process XXXXXX

Losses on LT Contracts

1. Loss in current period – contract still profitable
(dr.) Consruction Expenses XXXXXX (cr.) Construction in Process (loss) XXXX (cr.) Revenue – LT contracts XXXX

2. Loss on an Unprofitable Contract – always recognize loss immediately.
(dr.) Consruction Expenses XXXXXX (cr.) Construction in...

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