ACC 414 Study Guide - Final Guide: Gross Profit, Income Statement

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3 criteria must be fulfilled: earnings process is substantially complete, measurability is reasonably assured, collectability is reasonably assured. Journal entries (1) to record cost of construction (2) to record progress billings. Construction expense (3) to record collections (4) to recognized revenue (gross profit) (5) to record completion of the contract. If construction in process > billings: then put construction in process as asset (inventory) If billings > construction in process: then put billings as liability (unearned) Do not record revenue or gross profit until the contract is complete. (1), (2) & (3) are the same as percentage completion (4) to record revenue (5) to record costs. To record cost of goods sold on installment sales in 2004. To defer gross profit recognition for unrealized gross profit. Calculation: [current rate*(current sales current cash receipts)] To record cost of goods sold in 2005. Realized gross profit prior years sales (income statement) Deferred (unrealized) gross profit current year (income statement)

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