Liability date

[Brilliant]

vendor sends bill of 25,000 on Nov 2, 2011 for construction work that took him until Feb 15 2012 to complete, he needs 10% downpayment before he starts, the remainder is due upon completing the job, (contract was signed on Nov. 2, 11)
when does the liability start, on Nov. 2, 11 or on Feb 15, 12 or based on work complete? by Dec 31, he is filling accrual basis and calander year

[Nashville]

Percentage of Completion

A contractor has to recognize revenue on percentage of completion, in most cases even if a contractor is on a cash basis.

Recommend estimating % of completion in the most accurate way possible - incurred cost, hours expended, material spent, etc. The preferred way would be total cost spent versus total cost in the bid.

Multiply this percentage X total contract amount. Subtract amounts already billed, and [presto!] you've got the amount of revenue to be recognized. It if happens that your result is a negative number, then you can adjust to bring your revenue DOWN instead of up, but this is unlikely.

[Brilliant]

A contractor has to recognize revenue on percentage of completion, in most cases even if a contractor is on a cash basis.

Recommend estimating % of completion in the most accurate way possible - incurred cost, hours expended, material spent, etc. The preferred way would be total cost spent versus total cost in the bid.

Multiply this percentage X total contract amount. Subtract amounts already billed, and [presto!] you've got the amount of revenue to be recognized. It if happens that your result is a negative number, then you can adjust to bring your revenue DOWN instead of up, but this is unlikely.

thanks Nashville,
does it make a difference if the job takes 2 years or less?

[Snaggletooth]

One Year

Yes, there is a specified time. For a contract lasting less than ONE YEAR, the requirement for % of completion is lifted, although the taxpayer may choose to do it anyway. Two years means % of completion is required.

To be clear, if a contractor has 1 job lasting less than a year, and 9 jobs lasting more than a year, the relaxing of the requirement applies only to the 1 job, not to the other 9. For that reason, most contractors would still report consistently rather than break the mold for one job.

[Brilliant]

Yes, there is a specified time. For a contract lasting less than ONE YEAR, the requirement for % of completion is lifted, although the taxpayer may choose to do it anyway. Two years means % of completion is required.

To be clear, if a contractor has 1 job lasting less than a year, and 9 jobs lasting more than a year, the relaxing of the requirement applies only to the 1 job, not to the other 9. For that reason, most contractors would still report consistently rather than break the mold for one job.

thanks Snaggletooth

what about me the customer, do i pick up on Nov 2, the full 25,000 as expense/improvements , or only the % of completion?