Journal Entries of Project Contracts

For a project total contract is let us say AED ( Arab Emirates dirham) 100000

Accounting Question :
Our company invoiced 90,000 in 2010, but 10% will be invoiced after completion of project in 2011. What is the journal entry if the 10% is invoiced only in next year.

In the profit and loss account, is it be shown as a sperate income ( Sales income - retention )

Materials already consumed in year 2010.

Retention Account Dr.

Sales - Retention Account Cr.

Is it ok for 2010 entry? In 2011, when  it is invoiced

Which Account Dr.

Retention Account Cr.

Answer :

Under FASB's accounting principle, there are many method to deal such issues. But, best is accrual principle. In this principle, when you do sale or started the project after the order by your customer, you will ready to pass the journal entry, whether customer has paid or not. But, I think, you are using other method, in which, you have to send the bill or invoice and then record it as earning or sale.

According to this,

In 2011, we will pass the journal entry

Customer Account  Dr. ( 10% of project ) because, you are sending invoice.

Sale Account Cr.

But if you passed

Retention Account Dr.

Sales - Retention Account Cr.  in 2010, then

In 2011, you will pass

Customer Account Dr.

Retention Account Cr.