Final answer:
The account descriptions used in the journal entry to close out the billings and construction in progress accounts are different depending on whether revenue is recognized upon completion or over time.
Step-by-step explanation:
The account descriptions used in the journal entry to close out the billings and construction in progress accounts are different depending on whether revenue is recognized upon completion or over time.
If revenue is recognized upon completion, the account descriptions used are Construction in Progress and Billings. If revenue is recognized over time, the account descriptions used are Construction in Progress and Billings in Excess of Costs Incurred.
For example, if a construction project is completed and revenue is recognized upon completion, the journal entry would be:
- Debit Construction in Progress
- Credit Billings
On the other hand, if revenue is recognized over time, the journal entry would be:
- Debit Construction in Progress
- Credit Billings in Excess of Costs Incurred