'Billings in excess of costs and estimated earnings' is presented on the balance sheet as which of the following?

• A. A current asset representing revenue to be billed later.
• B. A long-term liability for future project expenditures.
• C. A current liability representing the amount billed to date that exceeds costs plus recognized earnings.
• D. Equity reserve for future profits.

Answer: (C)

In construction accounting under the percentage-of-completion method, revenue and costs are tracked over the life of a contract. Billings occur when you issue invoices to the client, while costs and estimated earnings represent the value of work earned to date. When the total amount billed to date exceeds the costs plus the recognized earnings, you have overbillings. That excess is shown on the balance sheet as a current liability called billings in excess of costs and estimated earnings. It signals you’ve billed more than you’ve earned and may owe the customer future work or credits until revenue catches up with billings.

For example, if costs to date plus recognized earnings equal 600,000 and you’ve billed 650,000, the 50,000 overbillings appear as a current liability. If costs and estimated earnings exceeded billings, the opposite would appear as a current asset (costs and estimated earnings in excess of billings).