Percentage of Completion Method (Financial Accounting)

This video discusses the Percentage-of-Completion Method for recognizing revenue on long-term contracts in accounting. The video provides a comprehensive example to illustrate how the percentage-of-completion method is used to recognize revenue and contrasts it with the completed-contract method.
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[@makaylavidal3593]

5 years of accounting later, and currently studying for the CPA Exam and still coming back to your videos

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You're very welcome!

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Edspira, you are making it possible to take online accounting classes. Since we don't have lectures, I depend on the expertise of instructors like you to fill the gaps in my understanding, and you are so good at explaining what are to me very complex concepts. Thank you so much!

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[@Edspira]

+carolina c Thank you for the kind words!

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Good luck on the test my friend!

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[@Edspira]

Welcome aboard!

[@liangguo5065]

I have been working as an accountant for 10 years but mainly for retail business. I recently got an offer from an engineering project business. To be honest, after working in retail/wholesale for 10 years, I completely forgot what CIP(or WIP) about. This is the best vedio. It saved time for me to look for my CPA books. Now I can remember the concept. THANK YOU!!!

[@ales9691]

Thank you! What was killing me was the journal entries. I understand a little bit better now because of this video. Thank you!

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I have a job interview Friday and this video has me rock hard! This is amazing and was exactly the info I was looking for!

[@FriarFan38]

This was the most helpful accounting video I have seen all semester. Thank you SO MUCH for your help!! I have a final tomorrow and this is reassuring me :)

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6 years later ..your videos are getting through so much . THANK YOU!!!

[@Edspira]

That's so cool that you've been following the channel for 6 years! I hope you continue to enjoy the videos!

[@loudeluca5225]

Loved the explanation of the percentage of completion method of accounting.

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You are helping me through my accounting classes. I love your clear explanations. Thank you

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Have an accounting final worth 65% and this video helped get one step closer to being prepared, thank you accounting god.

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I appreciate your videos, and remembered them. This one was extremely helpful for a current work life situation. Thank you so much for being here, your work is excellent!

[@Edspira]

I'm happy to help. Thanks Susanrose!

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Dude , you're a lifesaver i saw your video 30 minutes before the exam , I think i would get the full mark ,thanks a lot ...... :)

[@ulala2056]

Thank you so much for the clear explanation. I was very confused with the journal entries in the percent of completion method. But you explained it very well!

[@siddharthshivaramakrishnan5604]

Love this content. My midterm is in 2 days and this helped me a ton. Thanks a lot Edspira!

[@cesarcalderon2499]

another way to find the Construction Rev for 2018 is 50% - 20% = 30% then 0.3 x 20mill same with 100% . 100% - 50% = 50% = 0.5 x 20mill = total rev of 2019 Thanks man great tutorial.

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You don’t imagine how much I thank you for this amazing video! Thank you, thank you, thank you! 🙌

[@Edspira]

I'm so glad you found it helpful!

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Thanks for simplifying the concepts, it's easy to understand

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Incredibly well explained. Thanks!

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Great video. I am working on the CPA exam right now and this is a great refresher and a great example! Thank you!

[@Edspira]

Dustin D No problem! Good luck with the CPA exam!!

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Did you pass!!

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are you a CPA now?

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I understand this so much better thank you so much MY SAVIOUR!

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Thanks a ton! You are very clear, and the example is fantastic. Great video!

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Very well done. I am a CPA. Thank you.

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Thank you so much for uploading these videos. Great content, clear explanations.

[@jessicakuzmin7547]

Thanks for this clear, thorough video! It's a great refresher for my final exam.

[@Edspira]

+Jessica C Happy to help. I hope you do great on your exam!!

[@suzettejonestravelinfo]

thank you for the step by step play , the percentage of completion made easy.

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Thank you so much for uploading! Super super helpful for my midterm!!

[@Edspira]

No problem- I hope you ace your midterm!

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This explanation was clear and very easy to follow. Thank you!

[@Edspira]

You're very welcome!

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Awesome video. Yet again you've managed to make an otherwise difficult accounting topic to grasp understandable.

[@Edspira]

Thank you for the kind words. I hope you have a wonderful Thanksgiving. Best wishes :)

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Sir, you are simply awesome, really appreciate your efforts. thanks.

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Thank you, helped me understand this topic .

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Thanks a lot brother, thorough explanation and easy to read charts

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Very clear ! Thanks !

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Best explanation ever! Thank you so much!

[@Edspira]

Thanks!

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Thank you for this video! I understand it without getting bored.

[@Edspira]

Glad you enjoyed it!

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VERY CLEAR OMG

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[@Edspira]

No problem!

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De nada! Ojala que vaya bien, mi amigo!

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My pleasure!

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[@Edspira]

No problem!

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Thank you!

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Excellent!

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Thank You Sir !

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Thank you very much :) The videos are useful.

[@azharmehboob4958]

Gr8 explanation 👍🏼

[@emebetgashaw760]

thank you sir that was helpful

[@basheilig7480]

Amazing explanation as always :). You make it so easy to understand.

[@Edspira]

Thanks! 😃

[@MyShanann]

when your doing the journal entry for the billing acct. do you record for the current year or the total to date?

[@jonnywallach1]

Thank you! My brains are fried. This has really helped. Exam tomorrow!

[@Edspira]

I'm glad it helped. Good luck on the test!

[@jonnywallach1]

+Education Unlocked do you have a video explaining how to record the journal entry when the project is not profitable?

[@Edspira]

+Jon Wallach I don't have a video up for that situation just yet. When there is a loss on the contract you reverse any profit previously recognized and immediately book the anticipated loss.

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Thanks so much!

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GOD BLESS YOUR SOUL YOU JUST SAVED MY A** FROM FAILING

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I feel the same way! Hang in there.

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Thank you so much, the wiley books explanation and layout of this is so confusing

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Thank you so much

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It really helps!! Thanks !!!

[@Edspira]

+tang summer It's my pleasure. Good luck with your class!

[@user-sm1fh1iy4p]

Thanks

[@anshumanster]

you are the best

[@khaliljatt]

Hey there, thanks for the video, i just have one que, (at the end of year 1) from the journal entries, BILLINGS A/C is a Revenue A/C... i mean as Dr. AR Cr. Sales/Revenue and then, In CONSTRUCTION Rev A/C we're again booking a revenue of 4M, no entry cancels out the Billings account at this point. the total rev adds up to BILLINGS A/C + CONSTRUCTION REV A/C help me with my concept please.

[@kimw827]

Thanks! Do you happen to have a quick video on when the project experiences a loss - borrowing profit from the next year??

[@DonChubb]

I really appreciate your videos! These are so helpful and you do a great job of breaking down complex concepts to make them easier to understand. Also, your voice sounds a little bit like John C. Reilly. I like to picture Dr. Steven Brule teaching me about accounting.

[@Edspira]

John C. Reilly and I are both from the south side of Chicago, so that explains the similarity!

[@jeffreyrew1218]

Thank you for the videos you have posted, they are all very helpful. I am curious as to the increase in cost...would the company not absorb the increase from their revenue, or are we presuming the client would?

[@yonasasres5197]

thank you very much so clear

[@Edspira]

No problem!

[@tannertucker22]

Thank you. Why is the CIP increased/debit when recorded revenue and construction expense? I understand the need to balance the entry, but doesn't that bring the value of CIP (Inventory) to it selling value and therefore overstate its value? If the revenue and the value of the inventory sold have the same value, how is profit recorded and why allow the overstatement of the CIP account?

[@HaileyRenay2012]

Thank you so much!

[@Edspira]

No problem!

[@rexroad]

Thanks!

[@Edspira]

Sure thing Matt, I really appreciate all your support!

[@sonampatil7895]

thanku

[@mysunshine3905]

i like ur teaching method ...

[@Edspira]

Thanks!

[@frontiertax895]

Thank you very much for your video, you're such a good teacher! May I ask what type of technology or gadget you used in order to be able to "write on the screen"?

[@veasnapech1298]

Great! Could I have deeper on it please!

[@RoseVentus]

Wow! This seems like an easy way to calculate revenue and gross profit. The way I was taught involves lots of calculations lol However, I would like to know how you calculate construction in progress without finding the difference for year 2018. Like you take 50% of $5m and then subtract the previously recognized gross profit? Edited: Nevermind, I found my answer: Estimated total costs in 2018 is now $16 (instead of $15m), so $20m-16m=$4m 50% of $4m = $2m - 1m (previously recognized gross profit in 2017) = $1 gross profit recognized in 2018

[@patriziapo1744]

i read "billings" as "billingo" and wondered what is it the whole time until it was mentioned 😂

[@Binod00]

Really great, clear explanation, thanks! Just wondering, should not it be A/P under the cash as credit? I keep in mind, A/R is debit account. I get confused with this credit and debit stuff 🤔

[@cutesexygal1]

does this still applicable to IFRS 15 Revenue recognition?

[@chriso.6296]

Hello Edspira, Where do you factor in % of work completion (i.e. % physical progress) in your computation? Or do we assume: the % progress on cost (% POC) i.e. cumulative cost to date / overall cost budget = % of work completion ?

[@718lmc]

does it the same way to calculate the % of competition as in regulation tax ?

[@Aliraxa777]

thank you sir for this wonderfull effort really helped me a lot to understand the concept just before a day of my final semester but can you please upload a video in case of we incurred loss on project please

[@Edspira]

I hope to create such a video this winter break! Unfortunately I haven't been able to create any new videos in the past few weeks and am merely releasing ones I created over the summer. I'm sorry I haven't been able to create new videos faster, but I will be opening up my schedule to produce more videos in the coming year.

[@Amy1664880129]

Thank you! This really helped my understanding. In Canada, we've recently adopted the Contract Asset/Liability instead of using the CIP and Billings Account. Do you think you upload an example using this method?

[@Edspira]

I will put that on my production list, although I might not get around to it until this fall. Sorry for the delay!

[@user-nm1vf8ce5h]

Thank you for your video I was just dying due to construction contract 😂

[@GEORGIANATOR123]

thank you!! I have my exam in two days and this was driving me crazy! you helped me a lot!

[@Edspira]

No problem. I have 8 videos on revenue recognition on my website free of charge if you want additional study materials. edspira.com/lessons/revenue-recognition Good luck on your exam!

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how are you Georgia B

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Love you

[@maleaccountant7198]

Nice video. Helps me a lot. Sir can you make video about franchise accounting and installmens sales too.

[@Edspira]

www.edspira.com/topic/installment-sales-method/ www.edspira.com/topic/accounting-franchise-fees/ Best of luck in your studies!

[@zainalqassar4859]

Is the input method the same as the percentage of completion method?

[@mrcoolonweb]

Thanks Michael, you made my life easy. by the way CIP is also known as WIP right?

[@ali8bilal]

THIS VIDEO WAS UPLOADED IN 2015. Now, new standard comes with new modification. Dont watch it

[@michaeljeter502]

Can I amend my client's business return for prior years to reflect this method as the previous accountant filed a straight cash = revenue method?

[@danielaziz6538]

Is the CIP in the last journal entry each year (the filler as you referred) the gross profit for each year? So 2017 gross profit is $1,000,000, 2018 Gross profit $1,000,000 and 2019 gross profit $2,000,000? Thanks in advance very helpful video

[@davidbanks636]

The Billings account that you mention is a substitute for revenue. So I am trying to wrap my head around what kind of account is a Billings account? Does it rest on the equity side? Also if you have an example of another term used other than Billings.

[@BaimurzaeV9]

Thank you so much, was really useful. Still, I just have 1 question left. At the begining you have shown the difference of $5.000.000 as Gross Profit (20m - 15m) However, summing up CIP-s in all years (1.000.000 + 1.000.000 + 2.000.000) we get only $ 4.000.000 So, where is the other $1.000.000 ?

[@milletmascioli9876]

+Batyrkhan Baimurzaev The gross profit change because the estimated total costs change too to $ 16 million, and for that reason the actual gross profit is $ 4 million (20m - 16m)

[@MrSandy3683]

On what basis is the billing done? Does some percentage formula is used?