Question:
The percentage-of-completion method of accounting for long-term construction contracts is an exception
to the
a. Matching principle.
b. Going-concern assumption.
c. Economic-entity assumption.
d. Point-of-sale recognition practice.
Answer:
d. Revenue is normally recorded at the time of the sale or, occasionally, at the time cash is collected.
However, sometimes neither the sales basis nor the cash basis is appropriate, such as when a construction
contract extends over several accounting periods. As a result, contractors ordinarily recognize revenue
using the percentage-of-completion method so that some revenue is recognized each year over the life of
the contract. Hence, this method is an exception to the general practice of recognizing revenue at the point
of sale, primarily because it better matches revenues and expenses.
The percentage-of-completion method of accounting for long-term construction contracts is an exception
to the
a. Matching principle.
b. Going-concern assumption.
c. Economic-entity assumption.
d. Point-of-sale recognition practice.
Answer:
d. Revenue is normally recorded at the time of the sale or, occasionally, at the time cash is collected.
However, sometimes neither the sales basis nor the cash basis is appropriate, such as when a construction
contract extends over several accounting periods. As a result, contractors ordinarily recognize revenue
using the percentage-of-completion method so that some revenue is recognized each year over the life of
the contract. Hence, this method is an exception to the general practice of recognizing revenue at the point
of sale, primarily because it better matches revenues and expenses.
