Question

As of December 31, 2021, Cady Construction has one construction job for which the construction in prog-ress (CIP) account has a balance of $20,000 and the billings on construction contract account has a balance of $14,000. Cady has another construction job for which the construction in progress account has a balance of $3,000 and the billings on construction contract account has a balance of $5,000. Indicate the amount of contract asset and/or contract liability that Cady would show in its December 31, 2021, balance

Answer 1

Answer:

According to "AS 7 - Construction Contracts",Gross amounts receivable / payable from / by customers should be recognized as contract asset / liability in the balance sheet.

For the first job, construction work in progress is greater than the bills raised. Hence there exists contract asset.

Contract asset = Cost incurred - Billing done

= $20,000 - $14,000

= $6,000

For the second job, construction in progress is less than the bills raised. Hence there exists contract liability.

Contract liability = Bills raised - Cost incurred

= $5,000 - $3,000

= $2,000

Hence, Contract asset = $6000 , Contract Liability = $2000