Question

Construction Contracts JE:

1. Record cost incurred
2. Record billings
3. Record payments received
4. Record revenue/cost during construction period

Answer 1

In construction contract accounting, one records costs incurred, billings to the client, payments received, and revenue/cost recognition throughout the construction period. Change orders also play a critical role, and terms of payment, including interest on late payments, should be detailed in the contract.

Step-by-step explanation:

Recording financial transactions for construction contracts involves several entries to reflect the costs, billings, and payments associated with the construction period. Here's a brief overview of the steps involved:

1. Record cost incurred: This involves documenting all costs associated with the construction process, such as labor, materials, and equipment expenses.
2. Record billings: The contractor invoices the client for the work performed. These billings may be done on a progress basis or at specific milestones.
3. Record payments received: When the client pays an invoice, the payment is recorded, reducing the accounts receivable balance.
4. Record revenue/cost during the construction period: Revenues and costs are recognized over the life of the project, often according to the percentage-of-completion or completed-contract method.