What are progress billings for long-term projects?

October 20, 2014

In this article, we’ll discuss progress billings, one of the facets of accounting for long-term contracts. More than just a record of invoices sent to the client, the amount of billings determine, in part, what appears on the balance sheet.

1. Progress billings

During the course of a project, contractors may bill clients for a portion of the total contract price in order to mitigate project costs and assure that at least a portion of the costs incurred can be paid for in the event of client bankruptcy. The billing schedule is generally agreed upon in advance. The amount charged could be based on a percentage of costs incurred since the last bill, or it might be a set amount.

Billing statements could include information about costs incurred so far, estimated costs to completion, payments made to date, and current payments due. Below is an example of what a statement might look like for a fictional company that is having a manufacturing factory built for its new product line.

XYZ Company
Manufacturing Facility

Original contract price

$10,000,000

Costs incurred to last billing date

$2,800,000

Progress billings to date

$3,200,000

   

Cost of materials since last billing date

$500,000

Cost of labor since last billing date

$1,000,000

Overhead allocated to project since last billing date

$800,000

Total costs incurred since last billing date

$2,300,000

   

Amount due on past billings

$0

Current payment due *

$2,500,000

(*) Amount is based on a pre-determined schedule in the contract.

When the statement is sent out to the client, the journal entry records a debit to accounts receivable and a credit to progress billings. When the contract is completed, the progress billings account for the project is closed along with the other contract accounts.

Not a member?
See why people join our
online accounting course:
Lecture Contents:
Free Study Notes
Download free accounting study notes by signing up for our free newsletter (example):
First Name:
E-mail:
We never share or sell your e-mail to third parties.
Ask a Question
Suggest a Topic
Do you have an interesting question or topic?
Suggest it to be answered on Simplestudies.com: