Revenue Recognition

Question 1

How should gross profit be recognized for revenue over time?

Answer 1

Revenue Recognition Over Time:

(1) Calculate Expected Gross Profit:Contract Price - (Costs Incurred + Estimated Costs to Complete).
(2) Determine Profit Recognized to Date: Multiply Expected Gross Profit by the Percentage of Completion.
(3) Calculate Remaining Recognition: Subtract Profit Already Recognized from the Expected Gross Profit.

Question 2

Formula for Percentage Complete

Answer 2

Costs to date/Total Costs