Long Term Construction Contracts.docx

LONG TERM CONSTRUCTION CONTRACTS Journal Entries Percentage of Completion Method

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1. To take up costs: Construction in Progress (CIFTY) Cash or Accounts Payable (CIFTY) 

Zero-Profit Method

CIFTY = Costs Incurred for the Year

2. To take up contract billings: Cash (Billing Amount) Contract Billings (Billing Amount)

3. To take up collection of billings: Cash (Payment) Accounts Receivable (Payment) Or Cash (Payment) Accounts Receivable (Billing) Advances (Excess of Billing) 

Such transaction happens when the customer pays more than the actual billing.

4. To take up realized profit: Cost of Construction (CIFTY) Construction in Progress (RGP) Construction Revenue (COC + CIP)   

RGP = Realized Gross Profit COC = Cost of Construction CIP = Construction in Progress

1. To take up costs: Construction in Progress (CIFTY) Cash or Accounts Payable (CIFTY) 

3. To take up collection of billings: Cash (Payment) Accounts Receivable (Payment) Or Cash (Payment) Accounts Receivable (Billing) Advances (Excess of Billing) 

Above case happens when RGP is negative.

Such transaction happens when the customer pays more than the actual billing.

4. To take up realized profit: Cost of Construction (CIFTY) Construction Revenue (CIFTY) 

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CIFTY = Costs Incurred for the Year

2. To take up contract billings: Cash (Billing Amount) Contract Billings (Billing Amount)

Or Cost of Construction (CIP + CR) Construction in Progress (RGP) Construction Revenue (Illus. 1) Illustration 1. Contract Price Percentage of Completion Value of Contract Earned to Date Prior Construction Revenue Earned Construct. Rev. (Loss) For the Year

If there’s a positive RGP but you’ve already recorded a negative RGP in prior years or if it is the last year of construction and no negative RGP happened in the prior years.

XXX *X% XXX -XXX XXX

Such is the case when there is a positive RGP and it’s not the last year of construction.

Or Cost of Construction (CIP + CR) Construction in Progress (GPETD) Construction Revenue (Illus. 1) 

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Such is the case when there is a negative GPETD and no negative GPETD happened in the prior years. GPETD = Gross Profit Earned To Date

Or Or Cost of Construction (CR – CIP) Construction in Progress (RGP) Construction Revenue (Illus. 1)

Cost of Construction (CIP + CR) Const. in Progress (GPETD - GPEP) Construction Revenue (Illus. 1)

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Such is the case when there is a negative GPETD and a negative GPETD already happened in the prior years. GPEP = Gross Profit Earned Prior

Or Cost of Construction (CR – CIP) Construction in Progress (Credited CIP) Construction Revenue (Illus. 1) 

Such is the case when it is not the last year of construction and there is a positive GPETD in the current year but a negative GPETD happened in the prior year.

Or Cost of Construction (CR – CIP) Construction in Progress (TGP + Credited CIP) Construction Revenue (Illus. 1) 

Such is the case when it is the last year of construction and there is a positive GPETD but a negative GPETD happened in the prior year (last year).

Or Cost of Construction (CIFTY) Construction in Progress (TGP) Construction Revenue (COC + CIP) 

Such is the case when it is the last year of construction and no negative GPETD ever happened during the construction contract.

Or Cost of Construction (CR – CIP) Construction in Progress (TGP) Construction Revenue (Illus. 1) 

Such is the case when it is the last year of construction and there is a positive GPETD in the current year but a negative GPETD happened in the prior years, but not last year.

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NOTE: If silent, use Percentage of Completion Method. NOTE: Zero Profit Method is also called as the ‘Completed Contract Method’. NOTE: If CIP > CB, the difference is a current asset. NOTE: If CIP < CB, the difference is a current liability. NOTE: CR – COC = Gross Margin

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