Which of the following methods of recognizing income is most recommended? a. Billings method b. Percentage-of-Completion...

Which of the following methods of recognizing income is most recommended? a. Billings method b. Percentage-of-Completion method

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Solution:

Under billing method, revenue is recognized when billing is made to the customer whether or not services is provided to customer. This method of revenue recognition is known as billing method.

Under percentage of completion method, revenue is recognized by multiplying percentage of work completed with contract price. If any revenue is already recognized in previous period, then revenue of previous period is subtracted from total revenue to be recognized till date in order to determine revenue to be recognized for current period.

There are various method used to determine percentage of completion. for example, to determine percentage of completion, cost incurred till date is divided by total estimated cost to complete the contract then this percentage id muliplied by contract price to determine revenue recognition. Sometimes engineer technical certification is used to determine percentage of completion.

The most recommended method for revenue recognition is percentage of completion method as most of the firm uses this method for revenue recognition as this method is providing most accurate results and revenue is recognized progressively over the period of contract.

ekkarill92 answered 1 year ago

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