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Sharpe CPA  /  Footnotes  /  Contracts in progress

Contracts in progress: the percentage-of-completion note.

Written for the reader who sets the bonding line or the credit line. Enter the jobs from the work-in-progress schedule and the note builds itself — costs and estimated earnings, underbillings and overbillings, retainage, loss provisions, fade, and the backlog rollforward — with the schedules a surety expects. Free, and it runs in your browser.

Use at your own risk. This free tool is provided as is, without warranty, and is not accounting, legal or tax advice. All of the work a CPA performs is subject to that person’s or firm’s judgment. Do your own research and verify that the checklist or protocol you are using is valid and up to date. Built from public sources — see the sources and the terms of use.

The contractor

Contracts in progress

One row per job, from the work-in-progress schedule. Contract amount includes approved change orders. The prior-year columns are optional: they give this year’s revenue and the fade or gain on jobs carried over.

Contracts completed during the year

Receivables and retainage

Contract balances at the beginning of the year

Optional. Gives the opening and closing balances ASC 606-10-50-11 asks for.

Public business entities (ASC 606-10-50-8).

Estimates, claims and losses

Backlog

Used only when the prior-year columns are empty.

What the surety or the bank will see

Not part of the note — the analysis a bonding company or lender runs on these figures. Equity and working capital are optional.

Highlighted text is still to be filled in or checked. The Word file adds the schedules of contracts in progress and completed contracts on landscape pages, as supplementary information.

Written for the surety and the bank

Why this note is the one they read first.

A contractor’s bonding capacity and its line of credit are set from these numbers. The surety underwrites the work in progress — whether the estimates hold, how much is underbilled, how much profit is left in the backlog — and the bank watches receivables, retainage and the cash tied up in underbillings. The note gives them the figures; the schedules give them each job.

The accounting

  • ASC 606-10-25-27 — revenue over time when the customer controls the asset as it is built; progress by an input or output method (ASC 606-10-55-16 to 55-21).
  • ASC 605-35 — a provision for the full estimated loss on a contract as soon as the loss is evident.
  • ASC 606-10-45-1 — each contract is presented as a net contract asset or contract liability.
  • ASC 250-10-50-4 — the effect of a change in estimate, when material; ASC 275-10-50-8 — estimates reasonably possible to change.

The disclosures

  • ASC 606-10-50-11 — opening and closing receivables, contract assets and contract liabilities (entities other than public business entities); 50-8 to 50-10 adds the revenue from opening contract liabilities for public business entities.
  • ASC 606-10-50-13 — remaining performance obligations (backlog). A private company may elect not to give it, but a surety expects the reconciliation from beginning to end.
  • ASC 606-10-50-12 — performance obligations and payment terms, including retainage.
  • ASC 910 — contract-related balances are classified as current on the operating cycle.

The supplementary schedules

  • The schedule of contracts in progress and the schedule of contracts completed during the year are not required by GAAP, but sureties expect them, and many require them.
  • Reported on as supplementary information: AU-C 725 in an audit, AR-C 90 in a review.
  • The totals must agree to the note: underbillings, overbillings and the remaining revenue.

What the reader looks for

  • Underbillings against equity — costs not yet billable, unapproved change orders, or optimistic estimates.
  • Fade — gross profit estimates that fall as jobs progress; and the margin on jobs completed against those in progress.
  • Backlog against working capital and equity, and the gross profit still in it.
  • Loss jobs, retainage and its age, and claims recognized before they are settled.

See also the contractor Note 1. The surety ratios here are common practice, not GAAP; each surety sets its own. Check the references against the current text before relying on them; the CPA who signs the report owns every word.