Final answer:
To record revenue using the completed contract method upon contract completion, the journal entry debits Construction in Progress and credits Revenue from Long-Term Contracts. Any remaining balance in Billings on Construction in Progress is settled, and profit is recognized with a separate entry.
Step-by-step explanation:
The journal entry for recognizing revenue upon contract completion using the completed contract method typically involves moving the accumulated costs of the project from the balance sheet to the income statement and recognizing the associated revenue. Upon completion of the contract, the following journal entry is made:
Debit: Construction in Progress (or a similar account holding the project costs)Credit: Revenue from Long-Term Contracts (or a similar revenue account)
Additionally, if there is any remaining balance in the Billings on Construction in Progress account, it should be settled with the Construction in Progress account to reflect that the billings now match the costs and revenue recognised. Finally, any profit on the completed contract would also be recognized:
Debit: Billings on Construction in ProgressCredit: Construction in ProgressDebit: Revenue from Long-Term Contracts (for the gross profit amount)Credit: Gross Profit on Construction Contract (or other appropriate profit account)
This method of revenue recognition delays revenue and profit recognition until the project is fully completed, which may be suitable for certain contracts where project outcome cannot be reliably forecasted until the end.