Monday, July 13, 2009

recording long-term contracts on the balance sheet

Even if no profit has been recognized, the long-term contract itself must be recognized on the balance sheet to extent that it represents a net asset or liability. In these journal entries, the asset is the CIP account and the liability is the BCA.BCA is the liability because by sending an invoice to the customer, the contractor is promising to deliver something in the future to the customer. The difference between the construction in progress (CIP) AND the billings on construction account (BCA) Accounts is reported on the balance sheet as either an asset or liability.
If CIP > BCA, the difference is reported as a current asset (inventory)
If CIP < BCA the amount is reported as a current liability.

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