LONG TERM CONSTRUCTION CONTRACTS
Journal Entries
Percentage of Completion Method
1. To take up costs:
Construction in Progress (CIFTY)
Cash or Accounts Payable (CIFTY)
 CIFTY = Costs Incurred for the Year
2. To take up contract billings:
Cash (Billing Amount)
Contract Billings (Billing Amount)
3. To take up collection of billings:
Cash (Payment)
Accounts Receivable (Payment)
Or
Cash (Payment)
Accounts Receivable (Billing)
Advances (Excess of Billing)
 Such transaction happens when the
customer pays more than the actual
billing.
4. To take up realized profit:
Cost of Construction (CIFTY)
Construction in Progress (RGP)
Construction Revenue (COC + CIP)
 RGP = Realized Gross Profit
 COC = Cost of Construction
 CIP = Construction in Progress
Or
Cost of Construction (CIP + CR)
Construction in Progress (RGP)
Construction Revenue (Illus. 1)
Illustration 1.
Contract Price
Percentage of Completion
Value of Contract Earned to Date
Prior Construction Revenue Earned
Construct. Rev. (Loss) For the Year
 Above case happens when RGP is
negative.
Or
Cost of Construction (CR – CIP)
Construction in Progress (RGP)
Construction Revenue (Illus. 1)
 If there’s a positive RGP but you’ve
already recorded a negative RGP in prior
years or if it is the last year of construction
and no negative RGP happened in the
prior years.
Zero-Profit Method
1. To take up costs:
Construction in Progress (CIFTY)
Cash or Accounts Payable (CIFTY)
 CIFTY = Costs Incurred for the Year
2. To take up contract billings:
Cash (Billing Amount)
Contract Billings (Billing Amount)
3. To take up collection of billings:
Cash (Payment)
Accounts Receivable (Payment)
Or
Cash (Payment)
Accounts Receivable (Billing)
Advances (Excess of Billing)
 Such transaction happens when the
customer pays more than the actual
billing.
4. To take up realized profit:
Cost of Construction (CIFTY)
Construction Revenue (CIFTY)
 Such is the case when there is a positive
RGP and it’s not the last year of
construction.
Or
Cost of Construction (CIP + CR)
XXX Construction in Progress (GPETD)
*X% Construction Revenue (Illus. 1)
XXX
-XXX  Such is the case when there is a negative
XXX GPETD and no negative GPETD happened
in the prior years.
 GPETD = Gross Profit Earned To Date
Or
Cost of Construction (CIP + CR)
Const. in Progress (GPETD - GPEP)
Construction Revenue (Illus. 1)
 Such is the case when there is a negative
GPETD and a negative GPETD already
happened in the prior years.
 GPEP = Gross Profit Earned Prior

Or
Cost of Construction (CR – CIP)
Construction in Progress (Credited CIP)
Construction Revenue (Illus. 1)

 Such is the case when it is not the last year

of construction and there is a positive
GPETD in the current year but a negative
GPETD happened in the prior year.

Or
Cost of Construction (CR – CIP)
Construction in Progress (TGP + Credited CIP)
Construction Revenue (Illus. 1)

 Such is the case when it is the last year of

construction and there is a positive GPETD
but a negative GPETD happened in the
prior year (last year).

Or
Cost of Construction (CIFTY)
Construction in Progress (TGP)
Construction Revenue (COC + CIP)

 Such is the case when it is the last year of

construction and no negative GPETD ever
happened during the construction
contract.

Or
Cost of Construction (CR – CIP)
Construction in Progress (TGP)
Construction Revenue (Illus. 1)

 Such is the case when it is the last year of

construction and there is a positive GPETD
in the current year but a negative GPETD
happened in the prior years, but not last
year.

 NOTE: If silent, use Percentage of

Completion Method.
 NOTE: Zero Profit Method is also called as
the ‘Completed Contract Method’.
 NOTE: If CIP > CB, the difference is a
current asset.
 NOTE: If CIP < CB, the difference is a
current liability.
 NOTE: CR – COC = Gross Margin