Recognizing Losses for Percentage Complete Accounting Methods

Sage ERP Accpac Project and Job Costing 6.0

Recognizing Losses for Percentage Complete Accounting Methods

For projects that use a percentage complete accounting method, you run the revenue recognition functions periodically throughout the term of a contract to recognize revenues or record any losses.

Project and Job Costing recognizes two types of losses for projects that use a percentage complete accounting method:

  • Current period loss on a profitable project. The loss is for the current period on an otherwise profitable project or, for projects using the category percentage complete method, on an otherwise profitable category.

  • An overall loss on a project. The project has become unprofitable because of an increase in actual or estimated costs.

To recognize a loss, the program calculates revenue as usual. If the amount of gross profit to recognize to date is less than the amount previously recognized, a loss arises. The program then credits the work in progress account for the excess gross profit recognized in prior periods.

The cost of sales to be recorded for the period is the difference between the revenue and the negative gross profit.

The general ledger entry to record a loss for the current period on a profitable project is:

 

General Ledger Account

Debit

Credit

Cost of Sales

X

 

Revenue

 

X

Work in Progress (loss)

 

X

To record an overall loss, the program recognizes the revenue and cost for the period, and records the entire expected loss, as follows:

 

General Ledger Account

Debit

Credit

Billings

X

 

Revenue (for the period)

 

X

Cost of Sales

X

 

Work in Progress (for period costs)

 

X

Cost of Sales

X

 

Work in Progress (overall loss)

 

X

Category Percentage Complete

For the category percentage complete accounting method, the program recognizes losses category by category, rather than for the project as a whole. The program recognizes the entire loss for each project category.