Completed Contract Method (Financial Accounting)

This video discusses the Completed-contract Method for recognizing revenue on a long-term contract. The video provides a comprehensive example to illustrate the journal entries that are required, and it compares and contrasts these entries with the entries required under the Percentage-of-completion method.
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[@kb8481]

I appreciate the explanation! I just wish you went over how Income statement and balance sheet would look like with the accounts

[@Tamara-ju3lh]

I'm using this to study for FAR. Thank you so much!

[@Edspira]

Best of luck!

[@Mangoicyy]

You might have just saved me sir. Thank You!

[@RiseAgainst369]

Yes! Thank you. I just watched this before an interview at a real estate company tomorrow. If I get the job this would have been the best 11minutes spent in 2018 thus far

[@ronaldrodriguez9038]

did you get it?

[@stevendiaz7633]

I love the way these videos are presented I have a intermediate accounting final in 10 days and this video helps out a lot. I feel that you do a fantastic job explaining vs my professor which can be a little confusing at times.

[@Edspira]

Best of luck!

[@stevendiaz7633]

@@Edspira thank you so much.

[@anafarias-carrasco3318]

awesome video! Thanks

[@ruphang]

you're the best thank you

[@一点一滴学英文]

your videos are so excellent. I am a international student and I can understand your explanation completely. thank you !!

[@Edspira]

It's great to hear this. Best of luck in your studies!

[@manarzamrik3978]

Thanks!

[@saharhashim8291]

i am in love with your videos thx alot

[@weekipi5813]

Is That billing account an asset or a liability?

[@jasminecooper8610]

thank you

[@Edspira]

No problem! Best wishes

[@rickjacoby4542]

I usually would make 2 different entries to close out. Debit CIP for 4,000,000 Debit Cont Exp for 16,000,000 Credit Rev for 20,000,000 then close out accounts with the following BIllings debit for 20,000,000 CIP credit for 20,000,000 would this be wrong? or is it acceptable. Obviously you would be increasing CIP by the 4mil profit for a brief second until you zero it out but it was always easier for me to remember. Thanks

[@kiinyuum8001]

He did not go at this detail level. You are correct.

[@BobanOrlovic]

What about losses?

[@mukhtiarrao5874]

Sir plz i dnt get how increase estimated cost in 2018 n 2019.brief me reasons

[@kiinyuum8001]

It’s an assumption. Initially costs would be estimated to be X for a 3 year contract but as time passes the estimates are adjusted as the contract progresses. The instructor is focusing on the mechanics of the adjustments.

[@yonasasres5197]

helpfully

[@Edspira]

Thanks!

[@AhmedMohamed-du8dc]

thanks

[@Edspira]

No problem!

[@hawaii137]

What kind of account is billings?

[@rickjacoby4542]

I believe its a contra asset used simply to make the entries work instead of crediting revenue. crediting rev. would acknowledge the rev immediately on the income statement, which you wouldn't want to do on the percentage of completion method.

[@ahmadhama1981]

Yes actually what is billings account ? As Mr. Rick said it should be a contra account but why don't we use the CIP?

[@jose0589]

Billings is a contra asset account to CIP. Remember that CIP gets carried on your balance sheet as part of your Inventory. If Billings exceeds CIP, then that difference will be carried on your balance sheet as a liability instead of an inventory asset. That happens because you have actually billed more money than what you've delivered as part of the contract, therefore you have a liability.

[@CZac2k12]

I prefer the completed contract method over the percentage of completion method for long term contracts. I think revenue should be recognize only after the construction project is done. That's just my preference.

[@titochisanshi2524]

It's better