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?
Explanation
Billing $450,000 against $400,000 of revenue earned means $50,000 has been invoiced for work not yet performed, so it is a current liability, usually captioned billings in excess of costs and estimated earnings. The mirror case, earning more than has been billed, is the current asset called costs and estimated earnings in excess of billings, and it is the wrong side here. The obligation is expected to be worked off within the contract, so it is not long-term. And receivables record what the customer owes, which the over-billing does not reduce.
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