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Year 1 JE’s:
CIP 250K [costs are debited to CIP]
Cash/payables 250K
Total estimated profit = (1.8m contract price) – (costs incurred to date + est costs to complete)
Profit earned formula = (Cumulative costs to date) / (Total est costs at completion) * (Total est profit)
Year 2 JE’s:
CIP 990K [construction costs]
Cash/payables 990K
A/R 1130K [to record billings during yr2]
Progress billings 1130K
Cash 1040K [to record cash collections]
A/R 1040K
CIP 150K [see yr 2 calculations, above]
Income 150K
Yr 3: End of project additional entry
Progress Billings 1.8m [to close project, CIP should = progress billings]
CIP 1.8m
Completed-Contract Method
• Construction costs, collections and billings are same as % of completion method
• Don’t recognize any profit from the contract until it’s completed
• B/S rules are the same (net CIP and progress billings for each contract) for CA/CL position
Loss xx
Est Liability xx
2012 JE’s:
2012 A/R 15K [to record sales made in 2012]
Sales 15K
COGS 10K
INV 10K
Sales 15K
COGS 10K
Deferred G.P. 5K [B/S acct, to defer profit until pmt is received]
*G.P. % for year 12 = 5K/15K = 33.33%
2013 JE’s:
Cash 1000
2011 A/R 1000
Deferred G.P. 300
Realized G.P. 300 [goes to I/S]
Cash 1500
2012 A/R 1500
Deferred G.P. 500 [33.3% * 1500 cash collected]
Realized G.P. 500
Realized G.P. for year = (G.P. % for year * collection of that year’s A/R)
Deferred G.P. = (G.P. % by year * outstanding A/R balance for year]
Price-Level Accounting
• Voluntary basisà firms may present price-level adjusted information to supplement the F/S
Monetary Items: Cash, A/R, bonds, A/P, N/P, anything else tied to a currency
Def: Monetary assets represent a claim to receive a fixed sum of money or an amount determinable
without reference to future prices of specific goods and services
Nonmonetary Items: fixed assets, depreciation, intangibles, goodwill, inventory