% completion and liability

when do a contract, what amount will be recorded on balance sheet liablity part? if use % completion, why it will result a lower liablity than complete contract method? Thanks.

The reason total liabilities would be higher under completed contract is because the liability “net advance billings” is equal to the asset “construction in progress” minus “advance billings.” Construction in progress includes gross profit in the percent completion method so is higher than in completed contract. Advance billings is the same in both methods. In consequence, the net liability, if any, of CIP - AB will be larger in magnitude in completed contract (since we are subtracting from a lower CIP) and lower in percent completion (since we are subtracting from a higher CIP).

just think… im billing this much… but im only getting this much…therefore, it creates a liability

Thanks. still want to further clarify it: CIP (costs incurred and paid) is a liability or asset? Amounts billed and payments received is a asset or liability? if CIP < AP, then an asset increase happen(I think) or liability increase happen? Thanks. when construction - in -progress exceeds billings, dose it mean the CIP > AP? Thanks. then a net asset occur or a net liability occur? Thanks. Bluey 1.8T Wrote: ------------------------------------------------------- > just think… > > im billing this much… but im only getting this > much…therefore, it creates a liability