Recognition of long-term contracts using the percentage of completion method


The long-term contracts can be managed in two methods in accounting. For best accountancy training Best school of accountancy In Lahore. Here is the complete presentation of one of them, called the method to progress as well as the concrete answer to the question: how to account for a long-term contract using the method to progress?
Long-term contracts
Long-term contracts in a nutshell
The long-term contracts are not met, in practice, that in certain sectors. They relate, in general, to the accounting of construction and public works, computers and the aeronautics and space industries. They correspond to long-term contracts (more than two financial years) involving complex and unique projects . For a fuller presentation: defining and managing long-term contracts.
The long-term contracts may be two accounting treatments different: the first as the percentage of completion method (shown here) and the second using the method to completion (presented in a separate article and searchable here: treatment accounting for the method on completion of long-term contracts). It is important to emphasize here that the method of advancement represents the method recommended by the accounting authorities. It is the one that results in the best presentation of the financial information (one speaks of preferential method).
In the first place, and whatever the method used, the company must determine the forecast margin it expects to realize on its contracts, as soon as they are concluded. This calculation must be done by contract and not globally.

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