Completed-contract method
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The Completed-contract method is an accounting method of work-in-progress evaluation, for recording long-term contracts. GAAP allows another method of revenue recognition for long-term construction contracts, the percentage-of-completion method.
With this method revenue is recognized when the contract is fullfilled. The contract is considered complete when the costs remaining are insignificant.
When to use
The completed-contract method is used when costs are difficult to estimate, there are many ongoing small jobs (one time work), and projects are of short duration.[1]
Balance sheet presentation
- In current assets is shown excess of costs over billings: the current asset accounts are "due on accounts", a receivable account, and "construction in progress" ("CIP" - or "costs in excess of billings").
- In current liabilities is shown the excess of billings over costs ("progress billings"): these are progress billings on uncompleted contracts in excess of costs.
References
- ^ Michael C. Thomsett (July 2001). Builder's Guide to Accounting. Craftsman Book Company. p. 25. ISBN 978-1-57218-105-2. Retrieved 4 March 2012.