Under biling and over billing are terms which are popularly
used in construction business. Revenue recognition is the base for this under
billing and over billing calculation.
Some of the details of Over billing and under billing and it’s
Accounting t treatment are as follows
OVER BILLING
Over billing means billing of the revenue more than that of
the revenue actually earned( from % of
completion method) . In construction business , percentage of completion method
used for identify and recognise the
revenue for a particular period.
Due to over billing, customers or client need to pay more cash to contractor(excess
billed portion) so contractor get more money and it help to create more liquidity.
ACCOUNTING TREATEMENT - OVER BILLING
For Eg. In the case of Project A, monthly billed
amount AED 200,000/- and the actual
revenue recognized is Aed 170,000/- Accounting treatment is as follows-:
1) WHEN RAISING MONTHLY BILLING
PARTY A/C DR 200,000
TO
CONTRACT REVINUE 200,000
2)WHEN RECOGNISING
REVENUE UNDER PERCENTAGE OF COMPLETION METHOD AND BVALANCE TRANSEFERRED TO
EXCESS BILLING A/C
CONTRACT REVENUE A/C DR 30,000
TO EXCESS BILLING A/C 30,000
DISCLOSURE OF FINANCIAL STATEMENT
1)Recognised Revenue
for that period showing as ‘’Contract Revenue
‘’ in P&L A/c.
2)Party A/c showing
as ‘’Debtors’’ under ‘’current asset’’.
3)’’Excess billing’’ amount showing as liability under the
head ‘’current Liability’’.
ASSUMPTIONS OF OVER
BILLLING
1)Non booking of cost or less booking of cost will result in
to Over billing .
2)Due to over billing, contractor getting more than that of
cash which they deserved from the client.
UNDER BILLING
Under billing means billing of the revenue less than that of
the revenue actually earned( from % of completion method) . In construction
business , percentage of completion method used for identify and recognise the revenue for a
particular period.
Due to under billing, customers or client only pay less cash to contractor(less billed portion) so contractor only get less
money than that of deserved.
ACCOUNTING TREATEMENT - UNDER BILLING
For Eg. In the case of Project A, monthly billed
amount AED 170,000/- and the actual
revenue recognized is Aed 200,000/- Accounting treatment is as follows-:
1)WHEN RAISING MONTHLY BILLING
PARTY A/C DR 170000
TO
CONTRACT REVINUE 170000
2)WHEN RECOGNISING
REVENUE UNDER PERCENTAGE OF COMPLETION METHOD AND BVALANCE TRANSEFERRED TO
EXCESS BILLING A/C
WORK IN PROGRESS
DR 30,000
TO
CONTRACT REVENUE 30,000
DISCLOSURE OF FINANCIAL STATEMENT
1)Recognised Revenue
for that period showing as ‘’Contract Revenue
‘’ in P&L A/c.
2)Party A/c showing
as ‘’Debtors’’ under ‘’Current asset’’.
3)’Less billing’’ amount showing as Work in progress (WIP) under the head ‘’current Aset’’.
ASSUMPTIONS OF UNDER BILLLING
1)Excess booking of cost or variantion work but not
certified by client of consultant will result in to underbilling .
2)due to under billing, contractor getting only less cash than that
they deserved from the client.
