Dude I did Rogers for CPA. Couldn't understand Becker. Looking here for CMA. Edspira helped me graduate college and with the CPA as well. Total treasure!
Edspira, you are making it possible to take online accounting classes. Since we don't have lectures, I depend on the expertise of instructors like you to fill the gaps in my understanding, and you are so good at explaining what are to me very complex concepts. Thank you so much!
@@Edspira I see this type of comment so much.. "My professor can't explain as well" etc. I makes me think that education is failing and this is a much better model. UA-cam or something similar where the best explanations get the most view and/or likes.
Some professors don’t want to spend their time and efforts to teach; in stead, they just want to use their teaching platform to do their side businesses.
I have been working as an accountant for 10 years but mainly for retail business. I recently got an offer from an engineering project business. To be honest, after working in retail/wholesale for 10 years, I completely forgot what CIP(or WIP) about. This is the best vedio. It saved time for me to look for my CPA books. Now I can remember the concept. THANK YOU!!!
Michael, after years in finance still love your video's - the best period! Thank you for the information and education you graciously and freely provide the world.
This was the most helpful accounting video I have seen all semester. Thank you SO MUCH for your help!! I have a final tomorrow and this is reassuring me :)
THANK YOU, THANK YOU, THANK YOU, YOU ROCK! I wish I had discover your videos, a couple of years ago. It would have saved me TIME, ENERGY and I would have passed classes, as an adult working student with lack of time, concerns and responsibilities, WITHOUT ANY FRUSTRATION! Following along, and jumping back and forth the Intermediate Accounting Textbook, with the assumptions of prior knowledge liberally taken, and concepts jumbled up and squeezed to fit in out of context, in pages and pages of lessons (seemingly to refer at least to all concepts related, but not really explained) would otherwise prove a futile endeavor. Admittedly my wife was telling me about your videos a month ago, after taking your class and finally passing her Masters level taxation online course, I should have been more diligent in following her advise. Lo and behold, it came to the point of frustration that I had to search the web, and thankfully it led me to your videos. I wish you the VERY BEST!
Your videos are the best! I learn best by lectures, so online school has been really difficult for me. Thank you for helping me to understand this material more clearly!
+Jon Wallach I don't have a video up for that situation just yet. When there is a loss on the contract you reverse any profit previously recognized and immediately book the anticipated loss.
another way to find the Construction Rev for 2018 is 50% - 20% = 30% then 0.3 x 20mill same with 100% . 100% - 50% = 50% = 0.5 x 20mill = total rev of 2019 Thanks man great tutorial.
I really appreciate your videos! These are so helpful and you do a great job of breaking down complex concepts to make them easier to understand. Also, your voice sounds a little bit like John C. Reilly. I like to picture Dr. Steven Brule teaching me about accounting.
I appreciate your videos, and remembered them. This one was extremely helpful for a current work life situation. Thank you so much for being here, your work is excellent!
Wow! This seems like an easy way to calculate revenue and gross profit. The way I was taught involves lots of calculations lol However, I would like to know how you calculate construction in progress without finding the difference for year 2018. Like you take 50% of $5m and then subtract the previously recognized gross profit? Edited: Nevermind, I found my answer: Estimated total costs in 2018 is now $16 (instead of $15m), so $20m-16m=$4m 50% of $4m = $2m - 1m (previously recognized gross profit in 2017) = $1 gross profit recognized in 2018
Thank you so much for the clear explanation. I was very confused with the journal entries in the percent of completion method. But you explained it very well!
Thank you. Why is the CIP increased/debit when recorded revenue and construction expense? I understand the need to balance the entry, but doesn't that bring the value of CIP (Inventory) to it selling value and therefore overstate its value? If the revenue and the value of the inventory sold have the same value, how is profit recorded and why allow the overstatement of the CIP account?
Hey there, thanks for the video, i just have one que, (at the end of year 1) from the journal entries, BILLINGS A/C is a Revenue A/C... i mean as Dr. AR Cr. Sales/Revenue and then, In CONSTRUCTION Rev A/C we're again booking a revenue of 4M, no entry cancels out the Billings account at this point. the total rev adds up to BILLINGS A/C + CONSTRUCTION REV A/C help me with my concept please.
Shouldn't the CIP account have a debit balance of $24,000,000 at the end of the whole project? (3,000,000 + 5,000,000 + 8,000,000 for the construction costs and then 1,000,000 + 1,000,000 + 2,000,000 at the end when recognizing revenue). The credit of $20,000,000 at the end doesn't zero out the CIP account. Can someone please explain?
Thank you so much, was really useful. Still, I just have 1 question left. At the begining you have shown the difference of $5.000.000 as Gross Profit (20m - 15m) However, summing up CIP-s in all years (1.000.000 + 1.000.000 + 2.000.000) we get only $ 4.000.000 So, where is the other $1.000.000 ?
+Batyrkhan Baimurzaev The gross profit change because the estimated total costs change too to $ 16 million, and for that reason the actual gross profit is $ 4 million (20m - 16m)
Can you please explain why the $3 million is divided by the $15 million to get 20%? Other examples show that these totals are added together, then Costs Incurred to Date is divided by the sum of both. Shouldn't it have been $3m/$18m?
i love his videos, but im running into the same problem. im currently in taking int.accounting and was taught to get %completion =cost incurred/(cost incurred+est.cost to complete)
Adrienne Frame Because the $15m is the estimated TOTAL costs already. You will add to the cost incurred if the given amount will be an estimated cost to complete.
The Billings account that you mention is a substitute for revenue. So I am trying to wrap my head around what kind of account is a Billings account? Does it rest on the equity side? Also if you have an example of another term used other than Billings.
Hi great video, Can you elaborate the difference between the construction in progress(what is it asset?) and construction Expenses(COS)? So are we saying that all expenses incurred during the project is an asset?
What is the "Billing" account? I hear this in accounting for the first time and I have troubles understanding the journal entries with it. Is it an Asset or Liability? And why do I credit it when debiting A/R?
Is the CIP in the last journal entry each year (the filler as you referred) the gross profit for each year? So 2017 gross profit is $1,000,000, 2018 Gross profit $1,000,000 and 2019 gross profit $2,000,000? Thanks in advance very helpful video
thank you sir for this wonderfull effort really helped me a lot to understand the concept just before a day of my final semester but can you please upload a video in case of we incurred loss on project please
I hope to create such a video this winter break! Unfortunately I haven't been able to create any new videos in the past few weeks and am merely releasing ones I created over the summer. I'm sorry I haven't been able to create new videos faster, but I will be opening up my schedule to produce more videos in the coming year.
So, what would the 2017, 2018, and 2019 year end financial statements (income statement and comparative balance sheet) look like then under the percentage of completion method? There seem to be no closing entries for each year, leaving the accounts for Construction in Progress, Billings, and Construction Revenue with balances throughout the 3 year period. It seems like using the construction in progress account is a means of capitalizing the construction expenses, sort of like how inventory purchases are not recorded on the income statement, but rather on the balance sheet and netted against cost of goods sold to determine the change in inventory and, thus, the ending inventory to report to owners/shareholders. Is Construction in Progress a current or non-current asset then? Also, is there any good reason why billings should not at least closely match the revenue that was earned during each period?
Hello Edspira, Where do you factor in % of work completion (i.e. % physical progress) in your computation? Or do we assume: the % progress on cost (% POC) i.e. cumulative cost to date / overall cost budget = % of work completion ?
CIP is basically an inventory account to store the capitalized costs of the project, and Billings is a contra-CIP account, which allow CIP to be presented as a liability at the end of a period in which Billings has a higher credit balance than CIP (i.e., the firm billed the customer for more than the duties they've yet performed)
No problem. I have 8 videos on revenue recognition on my website free of charge if you want additional study materials. edspira.com/lessons/revenue-recognition Good luck on your exam!
Thank you! This really helped my understanding. In Canada, we've recently adopted the Contract Asset/Liability instead of using the CIP and Billings Account. Do you think you upload an example using this method?
Contract value doesn’t change, everything extra will be considered as change orders. All the current claims and change orders for the contract are subject to X% hold back. The HB will only be released when substantial completion is achieved. How to account for that?
I would like to ask one scenario : In 2018, no billing invoices and only receive the money from previous year, and cost incurred during 2018 $1000 only Should I revenue recognize for 2018?
I realize there is a flaw in this. As it says % of completion method, at each year end the % completed should be recognized as Revenue and the corresponding Cost of sales. Thus what remains in the CIP will be only that part for which corresponding revenue is not recognized. Thus in year 1, $1mn, and in Yr $2, another million, and in yr 3 the remaining $2 million should be recognized. (The 'upon completion method 'is generally not used for long term projects that cross a financial year and standard and tax laws in many countries do not allow this form) However, most construction accounting is not as so straight forward as this. At the beginning there could be a mobilization or advance fee/revenue, and there could be final retention paid buy customer a year after the project is completed. In such situation, pro rated set of has to be taken in to account, for each stage of progress billing and can be much complicated.!
Curious as to the detailed breakdown of CIP from year 2017-2019? the computation for this is a bit confusing 2017 1,000,000.00 2018 1,000,000.00 2019 2,000,000.00
Really great, clear explanation, thanks! Just wondering, should not it be A/P under the cash as credit? I keep in mind, A/R is debit account. I get confused with this credit and debit stuff 🤔
What account is "Billing" under? I'm a little confuse still why the revenue and billing is different since normally we don't bill until we earned". So in this case, shouldn't billing be 4 million and is a revenue account?
5 years of accounting later, and currently studying for the CPA Exam and still coming back to your videos
I hope you pass it! Hang in there, it will be worth it in the end!!
CPA MEANS 🤔🙏🏻🙏🏻🤔
I quite literally learned more in this one video than I did from my entire lecture on the topic, thank you
You're very welcome!
My accounting class seems impossible to pass but I can’t give up until I understand these concepts, so here I am !!
Same, we got this!
Trying to study cpa exam on Becker and your video clearly illustrates what was missing on Becker. Great example thanks a lot!
Dude I did Rogers for CPA. Couldn't understand Becker. Looking here for CMA. Edspira helped me graduate college and with the CPA as well. Total treasure!
Edspira, you are making it possible to take online accounting classes. Since we don't have lectures, I depend on the expertise of instructors like you to fill the gaps in my understanding, and you are so good at explaining what are to me very complex concepts. Thank you so much!
I'm taking FAR in 11 days and you're saving my life with your videos. Thank you so much! Your explanations always make sense.
Good luck on the test my friend!
Thank you very much for having these videos up. If only My professor explained like you do, the world would be better.
+carolina c Thank you for the kind words!
@@Edspira I see this type of comment so much.. "My professor can't explain as well" etc. I makes me think that education is failing and this is a much better model. UA-cam or something similar where the best explanations get the most view and/or likes.
Some professors don’t want to spend their time and efforts to teach; in stead, they just want to use their teaching platform to do their side businesses.
I have a job interview Friday and this video has me rock hard! This is amazing and was exactly the info I was looking for!
I have been working as an accountant for 10 years but mainly for retail business. I recently got an offer from an engineering project business. To be honest, after working in retail/wholesale for 10 years, I completely forgot what CIP(or WIP) about. This is the best vedio. It saved time for me to look for my CPA books. Now I can remember the concept. THANK YOU!!!
I accidentally found your video after 5hrs of my struggle watching Becker lectures video. Thank you sooo much !!!!
Welcome aboard!
Michael, after years in finance still love your video's - the best period! Thank you for the information and education you graciously and freely provide the world.
This was the most helpful accounting video I have seen all semester. Thank you SO MUCH for your help!! I have a final tomorrow and this is reassuring me :)
Loved the explanation of the percentage of completion method of accounting.
You are helping me through my accounting classes. I love your clear explanations. Thank you
THANK YOU, THANK YOU, THANK YOU, YOU ROCK! I wish I had discover your videos, a couple of years ago. It would have saved me TIME, ENERGY and I would have passed classes, as an adult working student with lack of time, concerns and responsibilities, WITHOUT ANY FRUSTRATION! Following along, and jumping back and forth the Intermediate Accounting Textbook, with the assumptions of prior knowledge liberally taken, and concepts jumbled up and squeezed to fit in out of context, in pages and pages of lessons (seemingly to refer at least to all concepts related, but not really explained) would otherwise prove a futile endeavor.
Admittedly my wife was telling me about your videos a month ago, after taking your class and finally passing her Masters level taxation online course, I should have been more diligent in following her advise. Lo and behold, it came to the point of frustration that I had to search the web, and thankfully it led me to your videos.
I wish you the VERY BEST!
You don’t imagine how much I thank you for this amazing video! Thank you, thank you, thank you! 🙌
I'm so glad you found it helpful!
6 years later ..your videos are getting through so much . THANK YOU!!!
That's so cool that you've been following the channel for 6 years! I hope you continue to enjoy the videos!
Thank you! What was killing me was the journal entries. I understand a little bit better now because of this video. Thank you!
This explanation was clear and very easy to follow. Thank you!
You're very welcome!
Your videos are the best! I learn best by lectures, so online school has been really difficult for me. Thank you for helping me to understand this material more clearly!
Have an accounting final worth 65% and this video helped get one step closer to being prepared, thank you accounting god.
Great video. I am working on the CPA exam right now and this is a great refresher and a great example! Thank you!
Dustin D No problem! Good luck with the CPA exam!!
Did you pass!!
are you a CPA now?
Love this content. My midterm is in 2 days and this helped me a ton. Thanks a lot Edspira!
Dude , you're a lifesaver i saw your video 30 minutes before the exam , I think i would get the full mark ,thanks a lot ...... :)
Thank you for this video! I understand it without getting bored.
Glad you enjoyed it!
Thank you! My brains are fried. This has really helped. Exam tomorrow!
I'm glad it helped. Good luck on the test!
+Education Unlocked do you have a video explaining how to record the journal entry when the project is not profitable?
+Jon Wallach I don't have a video up for that situation just yet. When there is a loss on the contract you reverse any profit previously recognized and immediately book the anticipated loss.
Amazing explanation as always :). You make it so easy to understand.
Thanks! 😃
thank you for the step by step play , the percentage of completion made easy.
Awesome video. Yet again you've managed to make an otherwise difficult accounting topic to grasp understandable.
Thank you for the kind words. I hope you have a wonderful Thanksgiving. Best wishes :)
another way to find the Construction Rev for 2018 is 50% - 20% = 30% then 0.3 x 20mill same with 100% . 100% - 50% = 50% = 0.5 x 20mill = total rev of 2019
Thanks man great tutorial.
the 20 mins video of yours > my 2 hours class by a CPA tutor
Very well done. I am a CPA. Thank you.
Thanks for this clear, thorough video! It's a great refresher for my final exam.
+Jessica C Happy to help. I hope you do great on your exam!!
Thanks for simplifying the concepts, it's easy to understand
Thank you very much! I like the systematic way you presented this, it makes the accounting so much easier to understand.
I really appreciate your videos! These are so helpful and you do a great job of breaking down complex concepts to make them easier to understand. Also, your voice sounds a little bit like John C. Reilly. I like to picture Dr. Steven Brule teaching me about accounting.
John C. Reilly and I are both from the south side of Chicago, so that explains the similarity!
Great video, thanks for posting.
No problem!
Thank you so much for uploading these videos. Great content, clear explanations.
Thank you so much for uploading! Super super helpful for my midterm!!
No problem- I hope you ace your midterm!
Sir, you are simply awesome, really appreciate your efforts. thanks.
Thanks so much!
I appreciate your videos, and remembered them. This one was extremely helpful for a current work life situation. Thank you so much for being here, your work is excellent!
I'm happy to help. Thanks Susanrose!
Wow! This seems like an easy way to calculate revenue and gross profit. The way I was taught involves lots of calculations lol
However, I would like to know how you calculate construction in progress without finding the difference for year 2018. Like you take 50% of $5m and then subtract the previously recognized gross profit?
Edited: Nevermind, I found my answer: Estimated total costs in 2018 is now $16 (instead of $15m), so $20m-16m=$4m
50% of $4m = $2m - 1m (previously recognized gross profit in 2017) = $1 gross profit recognized in 2018
Thank you so much for the clear explanation. I was very confused with the journal entries in the percent of completion method. But you explained it very well!
I understand this so much better thank you so much MY SAVIOUR!
Best explanation ever! Thank you so much!
Thanks!
Thank you. Why is the CIP increased/debit when recorded revenue and construction expense? I understand the need to balance the entry, but doesn't that bring the value of CIP (Inventory) to it selling value and therefore overstate its value? If the revenue and the value of the inventory sold have the same value, how is profit recorded and why allow the overstatement of the CIP account?
Hey there, thanks for the video, i just have one que, (at the end of year 1)
from the journal entries, BILLINGS A/C is a Revenue A/C... i mean as Dr. AR Cr. Sales/Revenue
and then, In CONSTRUCTION Rev A/C we're again booking a revenue of 4M, no entry cancels out the Billings account at this point. the total rev adds up to BILLINGS A/C + CONSTRUCTION REV A/C
help me with my concept please.
Incredibly well explained. Thanks!
Great explanation, thank you
Thank you very much, simple and practical.
Greetings from Peru
De nada! Ojala que vaya bien, mi amigo!
Thanks a lot brother, thorough explanation and easy to read charts
Thank you so much, the wiley books explanation and layout of this is so confusing
Shouldn't the CIP account have a debit balance of $24,000,000 at the end of the whole project? (3,000,000 + 5,000,000 + 8,000,000 for the construction costs and then 1,000,000 + 1,000,000 + 2,000,000 at the end when recognizing revenue). The credit of $20,000,000 at the end doesn't zero out the CIP account. Can someone please explain?
You are the BEST! Thank you so much !
VERY CLEAR OMG
Thanks a ton! You are very clear, and the example is fantastic. Great video!
does this still applicable to IFRS 15 Revenue recognition?
Thank you so much, was really useful. Still, I just have 1 question left.
At the begining you have shown the difference of $5.000.000 as Gross Profit (20m - 15m)
However, summing up CIP-s in all years (1.000.000 + 1.000.000 + 2.000.000) we get only $ 4.000.000
So, where is the other $1.000.000 ?
+Batyrkhan Baimurzaev The gross profit change because the estimated total costs change too to $ 16 million, and for that reason the actual gross profit is $ 4 million (20m - 16m)
Can you please explain why the $3 million is divided by the $15 million to get 20%? Other examples show that these totals are added together, then Costs Incurred to Date is divided by the sum of both. Shouldn't it have been $3m/$18m?
i love his videos, but im running into the same problem. im currently in taking int.accounting and was taught to get %completion =cost incurred/(cost incurred+est.cost to complete)
Adrienne Frame Because the $15m is the estimated TOTAL costs already. You will add to the cost incurred if the given amount will be an estimated cost to complete.
@@claudiaigarcia925 I think they meant cost incurrred (3mln)+estimated cost to complete (12mln, that is 15mln - 3mln already incurred)
The Billings account that you mention is a substitute for revenue. So I am trying to wrap my head around what kind of account is a Billings account? Does it rest on the equity side? Also if you have an example of another term used other than Billings.
Hi great video,
Can you elaborate the difference between the construction in progress(what is it asset?) and construction Expenses(COS)?
So are we saying that all expenses incurred during the project is an asset?
Can I amend my client's business return for prior years to reflect this method as the previous accountant filed a straight cash = revenue method?
i read "billings" as "billingo" and wondered what is it the whole time until it was mentioned 😂
What is the "Billing" account? I hear this in accounting for the first time and I have troubles understanding the journal entries with it. Is it an Asset or Liability? And why do I credit it when debiting A/R?
Is the CIP in the last journal entry each year (the filler as you referred) the gross profit for each year? So 2017 gross profit is $1,000,000, 2018 Gross profit $1,000,000 and 2019 gross profit $2,000,000?
Thanks in advance very helpful video
Great! Could I have deeper on it please!
Thank you very mutch for this video
i like ur teaching method ...
Thanks!
thanks, saved my life cheers!
thank you sir for this wonderfull effort really helped me a lot to understand the concept just before a day of my final semester but can you please upload a video in case of we incurred loss on project please
I hope to create such a video this winter break! Unfortunately I haven't been able to create any new videos in the past few weeks and am merely releasing ones I created over the summer. I'm sorry I haven't been able to create new videos faster, but I will be opening up my schedule to produce more videos in the coming year.
On what basis is the billing done? Does some percentage formula is used?
So, what would the 2017, 2018, and 2019 year end financial statements (income statement and comparative balance sheet) look like then under the percentage of completion method? There seem to be no closing entries for each year, leaving the accounts for Construction in Progress, Billings, and Construction Revenue with balances throughout the 3 year period. It seems like using the construction in progress account is a means of capitalizing the construction expenses, sort of like how inventory purchases are not recorded on the income statement, but rather on the balance sheet and netted against cost of goods sold to determine the change in inventory and, thus, the ending inventory to report to owners/shareholders. Is Construction in Progress a current or non-current asset then? Also, is there any good reason why billings should not at least closely match the revenue that was earned during each period?
Hello Edspira,
Where do you factor in % of work completion (i.e. % physical progress) in your computation?
Or do we assume:
the % progress on cost (% POC) i.e. cumulative cost to date / overall cost budget
= % of work completion ?
What type of accounts are the Billings and CIP. Are they just some sort of clearing account?
CIP is basically an inventory account to store the capitalized costs of the project, and Billings is a contra-CIP account, which allow CIP to be presented as a liability at the end of a period in which Billings has a higher credit balance than CIP (i.e., the firm billed the customer for more than the duties they've yet performed)
GOD BLESS YOUR SOUL YOU JUST SAVED MY A** FROM FAILING
I feel the same way! Hang in there.
thank you!! I have my exam in two days and this was driving me crazy! you helped me a lot!
No problem. I have 8 videos on revenue recognition on my website free of charge if you want additional study materials.
edspira.com/lessons/revenue-recognition
Good luck on your exam!
how are you Georgia B
Love you
Thank you for this great video!
My pleasure!
Thank you! This really helped my understanding. In Canada, we've recently adopted the Contract Asset/Liability instead of using the CIP and Billings Account. Do you think you upload an example using this method?
I will put that on my production list, although I might not get around to it until this fall. Sorry for the delay!
Contract value doesn’t change, everything extra will be considered as change orders. All the current claims and change orders for the contract are subject to X% hold back. The HB will only be released when substantial completion is achieved. How to account for that?
thank you sir that was helpful
does anyone know why the left A/R(A/R-cash collected) is not included when calculating current asset in B/S? and only considering CIP-Billings?
Thank you, helped me understand this topic .
I would like to ask one scenario :
In 2018, no billing invoices and only receive the money from previous year, and cost incurred during 2018 $1000 only
Should I revenue recognize for 2018?
Helpful video...thank you very much
Thanks! Do you happen to have a quick video on when the project experiences a loss - borrowing profit from the next year??
I realize there is a flaw in this. As it says % of completion method, at each year end the % completed should be recognized as Revenue and the corresponding Cost of sales. Thus what remains in the CIP will be only that part for which corresponding revenue is not recognized. Thus in year 1, $1mn, and in Yr $2, another million, and in yr 3 the remaining $2 million should be recognized. (The 'upon completion method 'is generally not used for long term projects that cross a financial year and standard and tax laws in many countries do not allow this form)
However, most construction accounting is not as so straight forward as this. At the beginning there could be a mobilization or advance fee/revenue, and there could be final retention paid buy customer a year after the project is completed. In such situation, pro rated set of has to be taken in to account, for each stage of progress billing and can be much complicated.!
Thank you for your video I was just dying due to construction contract 😂
Nice video. Helps me a lot.
Sir can you make video about franchise accounting and installmens sales too.
www.edspira.com/topic/installment-sales-method/
www.edspira.com/topic/accounting-franchise-fees/
Best of luck in your studies!
It really helps!! Thanks !!!
+tang summer It's my pleasure. Good luck with your class!
when your doing the journal entry for the billing acct. do you record for the current year or the total to date?
thank you so much for sharing those videos!
No problem!
Curious as to the detailed breakdown of CIP from year 2017-2019? the computation for this is a bit confusing
2017 1,000,000.00
2018 1,000,000.00
2019 2,000,000.00
Thank you very much :) The videos are useful.
amazing, thank you
Thanks Michael, you made my life easy. by the way CIP is also known as WIP right?
THIS VIDEO WAS UPLOADED IN 2015. Now, new standard comes with new modification. Dont watch it
Well done
Really great, clear explanation, thanks! Just wondering, should not it be A/P under the cash as credit? I keep in mind, A/R is debit account. I get confused with this credit and debit stuff 🤔
What account is "Billing" under? I'm a little confuse still why the revenue and billing is different since normally we don't bill until we earned". So in this case, shouldn't billing be 4 million and is a revenue account?
Very clear ! Thanks !
does it the same way to calculate the % of competition as in regulation tax ?