Who it helps
- Contractors and fit-out firms.
- Engineering and installation businesses.
- IT and creative firms that bill by milestone.
- Any business whose jobs span more than one month.
The accounting rule in plain words
Under SFRS(I) 15, a business recognises revenue as it performs the work when the contract meets certain conditions. Many project firms measure progress by cost to date against estimated total cost. The amount recognised is compared with what you billed.
- Revenue recognised is more than billed: the difference is a contract asset.
- Billed is more than revenue recognised: the difference is a contract liability.
- A contract expected to lose money needs a provision for the loss as soon as you know.
Worked example
| Item | S$ |
|---|---|
| Contract value | 500,000 |
| Cost incurred to date | 245,000 |
| Estimated total cost | 350,000 |
| Billed to date | 300,000 |
| Completion (245,000 / 350,000) | 70% |
| Revenue recognised (70% x 500,000) | 350,000 |
| Contract asset (350,000 - 300,000) | 50,000 |
The business billed S$300,000, yet it earned S$350,000. The S$50,000 gap sits as a contract asset until you bill it.
What we set up
- A WIP schedule for each project.
- Margin by project, updated each month.
- A forecast of cost to complete, which we review when estimates change.
- Tracking of variation orders, retentions and claims.
- Journal entries for your accounts and your auditor.
Why it matters
- You see a losing project in month three, not month twelve.
- Your bank and your auditor accept your figures.
- Your tax filing uses revenue that matches the accounts.
Try our free project WIP check on the home page for a first look at one project.
Common questions
Do all projects use percentage of completion?
Not always. The method depends on the contract terms. We check your contracts and apply the rule that fits.
Can you work from my spreadsheet?
Yes. We start with what you have and improve it.
Does it connect to cash?
Yes. Unbilled work ties up cash. See our Profit-to-Cash Review.