Write the journal entries for the percentage of completion method

Banking & FinanceFinance ManagementGrowth & Empowerment

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.

Journal entries

The journal entries for the percentage of completion 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
Period end adjustments for revenue
Construction expense
Construction in progress
Construction revenue
Completing the project
Construction in progress (Bill)
Construction in progress

Example

Consider the following table for understanding how to write journal entries. Here, all numbers are used for understanding purposes only.

Particulars2001 ($ IN MILLION)2002 ($ IN MILLION)2003 ($ IN MILLION)
Cumulative cost incurred ($)
4
9
15
Total cost (estimated) $
15
15
15
Billings
3
10
5
Collected
2
11
5

Solution

The journal entries by using the percentage of completion method for the data in the above mentioned table are as follows −

Particulars200120022003
Incurring costs
Dr. 4M
Cr. 4M
Dr. 3M
Cr. 3M
Dr. 8M


Cr.8M

Billing
Dr. 3M
Cr. 3M
Dr. 10M
Cr. 10M
Dr.5M
Cr. 5M
Receiving payments
Dr.2M
Cr. 2M
Dr. 11M
Cr.11M
Dr. 5M
Cr. 5M
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
Cr. 3.25M
Dr. construct Exp. 8M
Dr. CIP 3.5 M
Cr. Rev 11.5M
Completing the projects




Dr. billing 18M
Cr. CIP 18M


raja
Published on 07-Jul-2021 13:49:54
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