Business FinancesQuestion 503 of 1605
A contractor has earned $400,000 in revenue under percentage-of-completion accounting, but has billed the customer $450,000 to date. How is this $50,000 difference reported on the balance sheet?
a.As a current liability called "billings in excess of costs and estimated earnings" (over-billing)
b.As a current asset called "costs and estimated earnings in excess of billings" (under-billing)
c.As deferred revenue under long-term liabilities
d.As a reduction to accounts receivable
Explanation
When billings exceed earned revenue, the difference is over-billing and is reported as a current LIABILITY ("billings in excess of costs and estimated earnings") because the contractor effectively owes the customer work for amounts already invoiced.
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