Accounting Entries Using The Percentage Of Completion Method

November 9th, 2009 / No comments yet

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