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 |
|
|
|