Percentage of Completion Method (Financial Accounting)
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- เผยแพร่เมื่อ 30 ก.ค. 2024
- 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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5 years of accounting later, and currently studying for the CPA Exam and still coming back to your videos
I hope you pass it! Hang in there, it will be worth it in the end!!
CPA MEANS 🤔🙏🏻🙏🏻🤔
Trying to study cpa exam on Becker and your video clearly illustrates what was missing on Becker. Great example thanks a lot!
Dude I did Rogers for CPA. Couldn't understand Becker. Looking here for CMA. Edspira helped me graduate college and with the CPA as well. Total treasure!
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!
Thank you very much for having these videos up. If only My professor explained like you do, the world would be better.
+carolina c Thank you for the kind words!
@@Edspira I see this type of comment so much.. "My professor can't explain as well" etc. I makes me think that education is failing and this is a much better model. TH-cam or something similar where the best explanations get the most view and/or likes.
Some professors don’t want to spend their time and efforts to teach; in stead, they just want to use their teaching platform to do their side businesses.
I quite literally learned more in this one video than I did from my entire lecture on the topic, thank you
You're very welcome!
My accounting class seems impossible to pass but I can’t give up until I understand these concepts, so here I am !!
Same, we got this!
I accidentally found your video after 5hrs of my struggle watching Becker lectures video. Thank you sooo much !!!!
Welcome aboard!
I'm taking FAR in 11 days and you're saving my life with your videos. Thank you so much! Your explanations always make sense.
Good luck on the test my friend!
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!!!
Thank you! What was killing me was the journal entries. I understand a little bit better now because of this video. Thank you!
You are helping me through my accounting classes. I love your clear explanations. Thank you
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 :)
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!
Your videos are the best! I learn best by lectures, so online school has been really difficult for me. Thank you for helping me to understand this material more clearly!
Thank you very much! I like the systematic way you presented this, it makes the accounting so much easier to understand.
Great video. I am working on the CPA exam right now and this is a great refresher and a great example! Thank you!
Dustin D No problem! Good luck with the CPA exam!!
Did you pass!!
are you a CPA now?
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!
I'm happy to help. Thanks Susanrose!
Loved the explanation of the percentage of completion method of accounting.
6 years later ..your videos are getting through so much . THANK YOU!!!
That's so cool that you've been following the channel for 6 years! I hope you continue to enjoy the videos!
Thanks a ton! You are very clear, and the example is fantastic. Great video!
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!
You don’t imagine how much I thank you for this amazing video! Thank you, thank you, thank you! 🙌
I'm so glad you found it helpful!
thanks, saved my life cheers!
Incredibly well explained. Thanks!
This explanation was clear and very easy to follow. Thank you!
You're very welcome!
Have an accounting final worth 65% and this video helped get one step closer to being prepared, thank you accounting god.
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 ...... :)
Thank you so much for uploading these videos. Great content, clear explanations.
Thanks for simplifying the concepts, it's easy to understand
I understand this so much better thank you so much MY SAVIOUR!
Love this content. My midterm is in 2 days and this helped me a ton. Thanks a lot Edspira!
Thank you so much for uploading! Super super helpful for my midterm!!
No problem- I hope you ace your midterm!
Thanks for this clear, thorough video! It's a great refresher for my final exam.
+Jessica C Happy to help. I hope you do great on your exam!!
when your doing the journal entry for the billing acct. do you record for the current year or the total to date?
Thank you, helped me understand this topic .
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.
Awesome video. Yet again you've managed to make an otherwise difficult accounting topic to grasp understandable.
Thank you for the kind words. I hope you have a wonderful Thanksgiving. Best wishes :)
thank you so much for sharing those videos!
No problem!
Thanks a lot brother, thorough explanation and easy to read charts
Sir, you are simply awesome, really appreciate your efforts. thanks.
Thanks so much!
Thank you for this great video!
My pleasure!
thank you very much , great explanation .
Best explanation ever! Thank you so much!
Thanks!
Thanks! Do you happen to have a quick video on when the project experiences a loss - borrowing profit from the next year??
Very clear ! Thanks !
Thank you for this video! I understand it without getting bored.
Glad you enjoyed it!
Thank you very much, simple and practical.
Greetings from Peru
De nada! Ojala que vaya bien, mi amigo!
Amazing explanation as always :). You make it so easy to understand.
Thanks! 😃
Very well done. I am a CPA. Thank you.
You are the BEST! Thank you so much !
Thank you very much :) The videos are useful.
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"?
Helpful video...thank you very much
thank you for the step by step play , the percentage of completion made easy.
It really helps!! Thanks !!!
+tang summer It's my pleasure. Good luck with your class!
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?
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?
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 ?
Thank you! My brains are fried. This has really helped. Exam tomorrow!
I'm glad it helped. Good luck on the test!
+Education Unlocked do you have a video explaining how to record the journal entry when the project is not profitable?
+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.
Thanks so much!
Great video, thanks for posting.
No problem!
Thank You Sir !
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?
thank you very much so clear
No problem!
does it the same way to calculate the % of competition as in regulation tax ?
Gr8 explanation 👍🏼
the 20 mins video of yours > my 2 hours class by a CPA tutor
VERY CLEAR OMG
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.
John C. Reilly and I are both from the south side of Chicago, so that explains the similarity!
Excellent!
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 🤔
So, what would the 2017, 2018, and 2019 year end financial statements (income statement and comparative balance sheet) look like then under the percentage of completion method? There seem to be no closing entries for each year, leaving the accounts for Construction in Progress, Billings, and Construction Revenue with balances throughout the 3 year period. It seems like using the construction in progress account is a means of capitalizing the construction expenses, sort of like how inventory purchases are not recorded on the income statement, but rather on the balance sheet and netted against cost of goods sold to determine the change in inventory and, thus, the ending inventory to report to owners/shareholders. Is Construction in Progress a current or non-current asset then? Also, is there any good reason why billings should not at least closely match the revenue that was earned during each period?
does this still applicable to IFRS 15 Revenue recognition?
Thank you very mutch for this video
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?
I will put that on my production list, although I might not get around to it until this fall. Sorry for the delay!
does anyone know why the left A/R(A/R-cash collected) is not included when calculating current asset in B/S? and only considering CIP-Billings?
Thank you so much, the wiley books explanation and layout of this is so confusing
amazing, thank you
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.
Thank you so much
Is the input method the same as the percentage of completion method?
Thank you so much!
No problem!
What is the "Billing" account? I hear this in accounting for the first time and I have troubles understanding the journal entries with it. Is it an Asset or Liability? And why do I credit it when debiting A/R?
Sir, I have a question: Can we just call the orange CIP account "profit" or something like that because CIP is actually a temporary asset account right? So we dont confuse our profit with the purple CIP account.
Thank you!
i like ur teaching method ...
Thanks!
thank you sir that was helpful
i read "billings" as "billingo" and wondered what is it the whole time until it was mentioned 😂
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.
On what basis is the billing done? Does some percentage formula is used?
What account is "Billing" under? I'm a little confuse still why the revenue and billing is different since normally we don't bill until we earned". So in this case, shouldn't billing be 4 million and is a revenue account?
Thanks!
Sure thing Matt, I really appreciate all your support!
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
GOD BLESS YOUR SOUL YOU JUST SAVED MY A** FROM FAILING
I feel the same way! Hang in there.
Thanks very much for this video, have one question though. Is this really an accurate way of recognising project completion and by extension revenue? For example, to build the bridge, the first year could have huge costs such as raw materials, machinery purchase, etc. But the 2nd and 3rd years would be relatively cheaper, since there would be mostly only labour costs.
The real question here is, does amount of money spent really equal project completion?? In the scenario given above, perhaps in the initial 6 months we would 80% of the cost, which would imply that 80% of the project is completed, even though actually the bridge construction probably hasn't even started yet...
Hope I explained my question clearly :)
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
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.
Can you please explain why the $3 million is divided by the $15 million to get 20%? Other examples show that these totals are added together, then Costs Incurred to Date is divided by the sum of both. Shouldn't it have been $3m/$18m?
i love his videos, but im running into the same problem. im currently in taking int.accounting and was taught to get %completion =cost incurred/(cost incurred+est.cost to complete)
Adrienne Frame Because the $15m is the estimated TOTAL costs already. You will add to the cost incurred if the given amount will be an estimated cost to complete.
@@claudiaigarcia925 I think they meant cost incurrred (3mln)+estimated cost to complete (12mln, that is 15mln - 3mln already incurred)
Shouldn't the CIP account have a debit balance of $24,000,000 at the end of the whole project? (3,000,000 + 5,000,000 + 8,000,000 for the construction costs and then 1,000,000 + 1,000,000 + 2,000,000 at the end when recognizing revenue). The credit of $20,000,000 at the end doesn't zero out the CIP account. Can someone please explain?
you are the best
What type of accounts are the Billings and CIP. Are they just some sort of clearing account?
CIP is basically an inventory account to store the capitalized costs of the project, and Billings is a contra-CIP account, which allow CIP to be presented as a liability at the end of a period in which Billings has a higher credit balance than CIP (i.e., the firm billed the customer for more than the duties they've yet performed)