Completed-contract method
 | This accounting-related article is a stub. You can help Wikipedia by expanding it. |
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. The method can be used only when the job will be completed within two years from inception of contract and the total annual receipts are not bigger than $10 million.[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.