Accounting in construction projects

searcher profile

March 24, 2021

by a searcher from HEC School of Management, Paris in Bristol, UK

Has anybody implemented "cost to completion" /"percentage to completion" accounting principles for a construction or building services business? If so, would you be willing to speak about how you go about it and what tools you used?

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commentor profile
Reply by an investor
from The University of Chicago in Chicago, IL, USA
"Percentage of Completion" revenue recognize can be based upon relative costs (i.e. total cost incurred compared to total cost budgeted) or alternatively, engineering analysis based upon physical work completed. The latter is far more reliable and arguably critical given the investment risk. Also, when projecting cash flows, keep in mind (in the U.S.), the percentage of completion recognition of revenue and expenses for [lender] financial statement purposes is not the same as the methodology used for U.S. tax reporting purposes.
commentor profile
Reply by a searcher
from Stevens Institute of Technology in New York Metropolitan Area, USA
It is not that difficult to implement since if you use an AIA (American Institute of Architects) payment requisition, your schedule of values are used as the basis of progress payments. The challenge is the over-billing and under-billings for revenue recognition purposes. Can you elaborate what you are looking for?
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