Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

When is a loss recognized on a long-term contract under the percentage-of-completion method?

When the contract is at least 50% complete

When the customer makes the final payment

Only at the completion of the contract

As soon as it is probable that the contract will result in a loss, regardless of the stage of completion

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Verified step by step guidance

Understand the percentage-of-completion method: This accounting method recognizes revenue and expenses proportionally as the work on a long-term contract progresses. It is based on the percentage of the contract completed during a specific period.

Recognize the principle of loss recognition: Under the percentage-of-completion method, losses are recognized as soon as it is probable that the contract will result in a loss, regardless of the stage of completion. This ensures that financial statements reflect the economic reality of the contract.

Analyze the contract's projected costs and revenues: Compare the total estimated costs to the total estimated revenues. If the costs exceed the revenues, it indicates a probable loss.

Determine the timing of loss recognition: Unlike revenue recognition, which is based on the percentage of completion, losses are recognized immediately when they are probable, regardless of whether the contract is 10%, 50%, or 90% complete.

Apply the accounting treatment: Record the loss in the financial statements by debiting the loss account and crediting the contract-related accounts (e.g., construction in progress or accrued liabilities) to reflect the anticipated loss.