Accounting Entries Using The Percentage Of Completion Method

Under the percentage of completion method, revenue and expenses are recognized in income as the contract activities progress by reference to the stage of completion of a contract.

The costs incurred in reaching the stage of completion are matched with this revenue, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed.

Append below are the normal accounting journal entries pertaining to the taking up of revenue and expenses in construction contract accounting using the percentage of completion method:-

Accounting Entries Using The Percentage of Completion Method Debit Credit Contract costs 100,000 Cash/payroll/accumulated depreciation 100,000 Being costs assigned to a contract Construction materials, supplies,etc 20,000 Contract costs 20,000 Being contract costs relating to future activities being carried forward as an asset at the end of reporting period Contract Costs 80,000 Income Statement 80,000 Being net contract costs representing amount incurred and is closed off to the Income Statement for the period Due from customer/accounts receivables Xxx Progress billings account Xxx Being customers billed Cash Account Xxx Due from customer/accounts receivables Xxx Being cash received from customers Progress billings account Xxx Contract revenue in Income Statement Xxx Being contract revenue recognized based on stage of completion at end of each period