How are the balances of progress billings and construction in progress shown at reporting dates prior to the completion for a long term contract?

Answer 1

Construction in Progress (C-in-P) is an inventory account and Progress Billings is a contra account that relates to it. When a contractor incurrs costs from the process of construction it debits it to C-in-P. Here's an example transaction is as follows: C-in-P 10,000

Cash, A/P, etc. 10,000 Depending on whether the contractor is accounting via the completed contract method or percentage of completion method determines the ultimate balance of C-in-P. If percentage of completion method is used then the Gross Profit that results from the yearly recognition of revenue is debited to C-in-P as a sort of value added until the contract's completion. Progress Billings is credited every time an invoice is sent to the customer in request for funds. An example transation is as follows: A/R 15,000

Progress Billings 15,000 At the end of the contract Progress Billings should equal the amount to be collected from the customer. C-in-P and Progress Billings will appear on the Balance Sheet as follows: C-in-P 30,000

Progress Billings <25,000>

Progress in Excess of Billings 5,000 If the current balance of C-in-P is larger than the current balance in Progress Billings it will appear as an asset. If reversed it will appear as a liability because the customer will have greaty equity in the project than the contractor.