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Write the journal entries for the percentage of completion method
In this method, all the revenues are recognized based on the percentage of work completed over a period of time through a cost to cost method.
The journal entries for the percentage of completion method are as follows −
|Incurring costs||Construction in progress||Cash or accounts payable|
|Billing||Accounts receivable||Construction in progress (Bill)|
|Receiving payments||Cash||Accounts receivable|
|Period end adjustments for revenue||Construction expense|
Construction in progress
|Completing the project||Construction in progress (Bill)||Construction in progress|
Consider the following table for understanding how to write journal entries. Here, all numbers are used for understanding purposes only.
|Particulars||2001 ($ IN MILLION)||2002 ($ IN MILLION)||2003 ($ IN MILLION)|
|Cumulative cost incurred ($)||4||9||15|
|Total cost (estimated) $||15||15||15|
The journal entries by using the percentage of completion method for the data in the above mentioned table are as follows −
|Incurring costs||Dr. 4M|
|Period end adjustments for revenue||Dr. construct exp 4M|
Dr. CIP 0.5M
Cr. Rev 3.5M
|Dr. construct exp 3M|
Dr. CIP 0.25M
|Dr. construct Exp. 8M|
Dr. CIP 3.5 M
Cr. Rev 11.5M
|Completing the projects||Dr. billing 18M|
Cr. CIP 18M
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