英语手抄报内容
PERCENTAGE OF COMPLETION CONTRACT ACCOUNTING
Revenue is recognized as “production takes place” for long-term construction contracts having costs that can be reasonable estimated. If costs cannot be reasonably estimated, then the “completed contract method” must be ud.
PERCENTAGE-OF-COMPLETION METHOD
A.REQUIREMENTS
It is appropriate to u the percentage-of-completion method when collection is assured and the entity’s accounting system can:
1.Reasonably estimate profitability and
2.Provide a reliable measure of progress toward completion.
B.REVENUE RECOGNITION
The realization principle requires that revenue be earned before it is recognized.
1.Revenues are generally recognized when:
a.The earnings process is complete or virtually complete, and
b.An exchange has taken place.
2.The percentage-of-completion method recognizes income as work progress on the
contract.
3.Accounting for long-term construction contracts by the percentage-of-completion method
is an exception to the basic realization principle. This exception is bad on the evidence that the ultimate proceeds are available and the connsus that a better measure of periodic income results (principle of matching revenues and costs).
C.DETERMINATION OF REVENUES RECOGNIZED
Income recognized is the percentage of estimated total income either:
1.That incurred costs to date bear to total estimated costs bad on the most recent cost
information, or
2.That may be indicated by such other measure of progress toward completion appropriate
to the work performed.
D.MATERIAL AND SUBCONTRACT COSTS
During the early stages of a contract, all or a portion of items such as material not ud and subcontract costs may be excluded in determining the percentage of completion if it appears that the exclusion would produce a more meaningful allocation of periodic income.
E.LOSSES
A provision for the loss on the entire contract should be made when current estimates of the
total contract costs indicate a loss.
好逸恶劳的意思1.However, when a loss is indicated on a total contract that is part of a related group of
contracts, the group may be treated as a unit in determining the necessity of providing for loss.
2.Income to be recognized under the percentage-of-completion method at various stages
should not ordinarily be measured by interim billing
F.BALANCE SHEET PRESENTATION
“Billings on construction contract” and “construction-in-progress” are merely different accounts reprenting the same contract ast and should be shown net of their related contra accounts.
1.Current Ast Accounts
a)Due on accounts (receivable)
b)Costs and profit in excess of billings on uncompleted contracts (sometimes called
“construction-in-progress”)
OR
2.Current Liability Account
a)Billings in excess of costs and profits on uncompleted contracts.
G.ADVANTAGES/DISADVANTAGES
The principal advantages of the percentage-of-completion method are the accurate reporting of the status of the uncompleted contracts and the periodic recognition of income currently (rather than irregularly) as contracts are completed.
The principal disadvantage of the percentage-of-completion method is the necessity of relying on estimates of the ultimate costs.
H.ACCOUNTING FOR THE PERCENTAGE-OF-COMPLETION METHOD
The following are important points to remember in accounting for contracts under the percentage-of-completion method:
1.Journal entries and interim balance sheet treatment are the same as the completed
contract method except that the amount of estimated gross profit earned in each period
is recorded by charging the construction in progress account and crediting realized
gross profit.
2.Gross profit or loss is recognized in each period by the following steps:
3.An estimated loss on the total contract is recognized immediately in the year it is
discovered. However, any previous gross profit or loss reported in prior years must be
adjusted for when calculating the total estimated loss
.
PERCENTAGE OF COMPLETION YEAR 1 YEAR 2 YEAR 3 YEAR 4 Step 1-Compute GP of Completed
Contract
Total contract sales price $ 4,000 $ 4,000 $ 4,000 $ 4,000 Less: Total Estimated cost of contract -3,000-3,200-4,200-4,300 Total Gross Profit $ 1,000 $ 800 $ (200) $ (300)
Step 2-Compute "% of completion"
Costs incurred to date $ 1,500 $ 2,400 $ 3,600 $ 4,300 Total estimated cost of contract $ 3,000 $ 3,200 $ 4,200 $ 4,300 Percentage of completion 50%75%100% 100% Step 3-Compute GP earned to date
Total Contract GP $ 1,000 $ 800 $ (200) $ (300) x % of completion 50%75%100%100% GP earned to date (cumulative) $ 500 $ 600 $ (200) $ (300) Step 4-Compute GP earned each year-
梦见别人死了是什么预兆"% of completion method":
Previously recognized $ - $ 500 $ 600 $ (200) Current year gross profit $ 500 $ 100 $ (800) $ (100)
Example
The following fact pattern pertains to the long-term contract that Spencer Construction Company has with Fido Chow, Inc.
200020012002
戏剧家Costs to date100,000300,000550,000
Estimated costs to complete400,000200,000
Progress billings during year120,000350,000130,000
Cash collected during year90,000200,000250,000
At the beginning of the contract in 2000, the estimated costs are $500,000 and the contract price is $600,000. Note that sometime in year 2002 it became clear that the total costs on this contract were
going to be more than originally estimated. The total estimated costs are reevaluated at the end of each accounting period and adjusted bad on the currently available information. Also note, that the progress billings and the cash collections are reported for the current year. Be sure you examine the fact pattern to determine if the amounts are being prented as year to date or current year. It will affect the way you prepare your analysis.
Now that we have the fact pattern we can determine the percentage completion on a cost-to-cost basis for each year. The following provides this analysis.
200020012002
Percentage complete
Costs incurred to date100,000300,000550,000
Costs to complete400,000200,0000
Total estimated costs500,000500,000550,000
Percentage complete20%60%100%
鹿的成语The revenue on this long-term contract is fixed as of the signing of the contract. We know that the total revenue will be $600,000 so therefore using the above percentage completion we can determine the amount of revenue that should be recognized.
200020012002
Revenue recognized
哈雷摩托车图片
Contract price600,000600,000600,000
Percentage complete20%60%100%
公司活动策划Revenue recognized to date120,000360,000600,000
Revenue recognized in prior periods0120,000360,000
Revenue recognized in current period120,000240,000240,000
To derive the gross profit to be recognized during the current accounting period we need to convert the costs incurred to date to the current period costs. The following provides this analysis.
200020012002
Current costs
Costs incurred to date100,000300,000550,000
Costs recoginzed in prior period0100,000300,000
Current costs100,000200,000250,000
Having determined the current period revenue and costs we can know calculate the gross profit that should be recorded during each accounting period. The following provides this analysis.
200020012002
Current period gross profit
Revenue recognized in current period120,000240,000240,000
Current costs100,000200,000250,000
Current period gross profit20,00040,000(10,000)钱塘江堤
Note that we were not aware of our higher construction costs until the last year. Normally this would not be the ca. At any time during the construction cycle estimated total costs may be adjusted bad on new information.
Now that we have completed the analysis we need to prepare the journal entries for each year’s transactions. The following reflects the journal entries for 2000. During the year the construction costs, billings and collections would be recorded as they take place. We are going to record them as one general journal entry for the sake of simplicity.
Note that the “Construction expens (Cost of Construction)” and Revenue from long-term contract” accounts are nominal accounts and will be clod out at the end of the accounting period.
The two accounts that we need to keep track of throughout the life of the long-term contract are the “Construction in progress” and “Billings on construction contract” accounts. The following is the T-account analysis at the end of 2000.
