Percentage of completion method JE

  • Creator
    Topic
  • #1685587
    SchruteBeet
    Participant

    Hey guys,

    So I am working on F1 Sim 2 (question 2) on Becker. For those of you not using Becker, the question relates to JE on percentage of completion method. I understand the JE to record the costs, billings, payments received. However, can someone please explain how the JE to record the revenue/expense during the construction period works? Here’s an example of the JE I am talking about:

    Dr. Construction expense (or cost of long-term construction contracts)
    Dr. Construction in progress
    Cr. Revenue

    Thanks!

Viewing 7 replies - 1 through 7 (of 7 total)
  • Author
    Replies
  • #1685602
    jeff
    Keymaster

    None of the above.

    There is no such thing as percentage of completion or comepleted contract any more.

    #1685608
    SchruteBeet
    Participant

    Hey @Jeff I am looking at the new version of Becker with the 2018 Updates and they still seem to have included the completed contract, cost recovery and percentage of completion method. Is there somewhere I can find a list of differences between 2018 and 2017 FAR Updates so I am only studying the tested topics?

    #1685612
    jeff
    Keymaster

    Schrute – you’ll have to ask them. The new standard allocates revenue to performance olbigations.

    I was trying to be helpful – didn’t mean to come across jerky if I did 🙂

    jeff

    #1685615
    SchruteBeet
    Participant

    Not at all, Jeff. That was helpful! Thanks.

    #1685648
    sunshineandstudying
    Participant

    The first debit to construction expense should be the costs incurred this year (if given to-date costs, you need to subtract out prior years). The debit to Construction in Process (CIP) is the amount of gross profit recognized this year only (not prior years). CIP can also be a credit if it is an interim loss.

    I usually just plug the revenue amount, but it can also be computed by taking the % x the contract price. However, if you completed 40% in Year 1 and 75% in Year 2, for example, your credit to revenue would be the difference (35%) in year 2 because the 40% would have already been recorded in year 1.

    #1685653
    SchruteBeet
    Participant

    @sunshineandstudying That is so very helpful, thank you! So essentially, the construction expense is just the CIP you record earlier during the year, the CIP now is your gross profit and the Revenue is a plug but essentially that is your current year % completed * Contract price.

    #1685683
    sunshineandstudying
    Participant

    @SchruteBeet Exactly!!

Viewing 7 replies - 1 through 7 (of 7 total)
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