Write the journal entries for the completed contract method

Banking & FinanceFinance ManagementGrowth & Empowerment

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 −

ParticularsDebitCredit
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 −

Particulars199519961997
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 −

Particulars199519961997
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


raja
Published on 06-Jul-2021 12:19:03
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