Which expression represents a current liability under percentage-of-completion accounting?

Which expression represents a current liability under percentage-of-completion accounting?

• A. Costs in excess of billings
• B. Billings in excess of costs
• C. Wages payable
• D. Prepaid expenses

Answer: (B)

In percentage-of-completion accounting, you track both costs incurred to date and billings to date for each contract. When billings exceed costs, the company has received cash for work not yet earned, creating a current liability called billings in excess of costs. If costs exceed billings, that difference is a current contract asset (costs in excess of billings). Wages payable is a general payroll liability, not specific to the contract accounting presentation, and prepaid expenses are assets, not liabilities. Therefore, billings in excess of costs is the expression that represents a current liability under this method.

In percentage-of-completion accounting, you track both costs incurred to date and billings to date for each contract. When billings exceed costs, the company has received cash for work not yet earned, creating a current liability called billings in excess of costs. If costs exceed billings, that difference is a current contract asset (costs in excess of billings). Wages payable is a general payroll liability, not specific to the contract accounting presentation, and prepaid expenses are assets, not liabilities. Therefore, billings in excess of costs is the expression that represents a current liability under this method.