Accounting for long term contracts using Percentage Of Completion Method to to recognize profits & revenues over the life of the contract based on (Cost-To-Cost Basis), account for the contract with a Construction-In-Progress inventory account to accumulate the contract costs and gross profit, for contract billings accumulate in Billings Construction-In-Progress account (contra inventory account) which includes the amounts of accounts receivable over the life of the contract, the contract profits (losses) is calculated using the percent of completion (costs to date + estimated cost to complete = costs for the period, cost to date/total estimated cost for the period = percent completion), gross profit for the period = (total estimated profit x percent complete), gross profit for the current period is reduced by gross profit previous years gross profit, revenue recognized for the period is calculated using the percent of completion x contract price, the Construction-In-Progress inventory account is compared to the Billings CIP for the period, if CIP inventory has a greater balance than the Billings CIP, then the amount for CIP is reported as a current asset, if CIP is less than Billings CIP then its a current liability, at contract completion the CIP & Billings CIP are closed, gross profit equals revenue based on percent completion of the contract price less construction expenses (calculate from period to period & at contract completion, detailed accounting by Allen Mursau

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