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Write the journal entries for the completed contract method
In this method, all revenue and expenses will not be recognized, until the completion of the contract. If there is any unpredictability in collecting funds from customers, then this method is used. This method is easy to determine and simple.
Journal entries
The journal entries for completed contract method are as follows −
| Particulars | Debit | Credit |
|---|---|---|
| Incurring costs | Construction in progress | Cash or accounts payable |
| Billing | Accounts receivable | Construction in progress (Bill) |
| Receiving payments | Cash | Accounts receivable |
| Recording revenue | Construction in progress (Bill) | Construction revenue |
| Recording expense | Construction cost | Construction in progress |
Example
Consider the following table for understanding how to write journal entries −
| Particulars | 1995 | 1996 | 1997 |
|---|---|---|---|
| Cumulative cost incurred ($) | 2000000 | 5000000 | 12000000 |
| Total cost (estimated) $ | 12000000 | 12000000 | 12000000 |
| Billings | 2000000 | 4000000 | 7000000 |
| Collected | 1000000 | 5000000 | 7000000 |
Solution
The journal entries by using the completed contract method for the above-mentioned data are as follows −
| Particulars | 1995 | 1996 | 1997 |
|---|---|---|---|
| Incurring costs | Dr. 2000000
Cr.2000000 | Dr. 3000000 Cr. 3000000 | Dr. 7000000 Cr.7000000 |
| Billing | Dr. 2000000
Cr.2000000 | Dr. 4000000 Cr.4000000 | Dr. 7000000
Dr.7000000 |
| Receiving payments | Dr. 1000000 Cr. 1000000 | Dr. 5000000
Cr. 5000000 | Dr. 7000000
Cr. 7000000 |
| Recording revenue | Dr. 13000000
Cr. 13000000 | ||
| Recording expense | Dr. 12000000
Cr.12000000 |
Updated on 06-Jul-2021 12:19:03
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