Construction Accounting: % of Completion and Completed Contracts

Question 1

Percentage completion formula: what is it?

Answer 1

Step 1: Find gross profit of complete contract

Contract price
- estimated total cost
—————————-
= Gross profit

Step 2: Complete % of completion

Total current cost
total estimated cost of contract

** (total current cost and total estimate cost changes in each year; does not remain the same)

Step 3: Gross Profit x % completion = Profit earned to date

Step 4: Find gross profit earned for current year

Profit to date (PTD) at current year
- Previous period Profit to date
————————————–
= Current year to date

Question 2

Percentage completion formula: how to handle the loss found in current year?

Answer 2

Report the loss in the current year at the entire amount.
Or example:

total contract sale price $4,000
- total est cost contract -4,200
—————————— ———
= total gross loss ($200)

Step 3) GP earned to date =
-$200 loss x 100% = $(200) loss

Step 4)
($200) loss
- 600 previous period recognized profit 
-------------------------------
= $(800) loss

Question 3

What are two accounts on balance sheet that deals construction accounting?

Answer 3

Construction in progress

and

Progress billings

Question 4

Progress billings can become Current liability account when _____ ?

Answer 4

Progress billings is > costs or construction in progress

Question 5

Current asset accounts is recognized when?

Answer 5

Costs or construction-in-progress is > Progress billings

Question 6

If there’s a change in method in construction method, then it’s a change in accounting _____ And this required to be reported _______

Answer 6

change in accounting principle

Required reported retrospectively

Question 7

When costs / construction in progress is > Progress billings then Progress billings is a ___ account that reduces the current asset account.

Answer 7

Progress billings is contra-account when Construction in progress is > Progress billings