Costs in Excess of Billings Balance Sheet Treatment

What It Means (Textbook Style)

“Costs in Excess of Billings” appears on the asset side of the balance sheet for construction-type or long-term contract companies (contract accounting under percentage-of-completion or cost-to-cost methods).

Why does it arise?

Because the contractor has:

• Incurred more costs (and earned more revenue)
  than they have billed to the customer.

In other words, the contractor has performed work but not yet billed for it.
This creates an unbilled receivable → an asset.

Formula

Costs in Excess of Billings =
    (Total Costs + Recognized Profit)
       – Billings to Date

If positive → Asset
If negative → “Billings in Excess of Costs” → Liability

Balance Sheet Presentation

• Listed as Current Asset
• Usually under Construction in Progress (CIP) section

Practical Example (With $/Rs)

Scenario

A contractor is building a warehouse.

• Costs incurred to date: $300,000 (Rs 2.5 Cr)
• Earned profit to date: $60,000 (Rs 50 lakh)
• Billings issued to client: $320,000 (Rs 2.7 Cr)

Step 1: Compute “Costs in Excess of Billings”

= (300,000 + 60,000) – 320,000
= 360,000 – 320,000
= $40,000  (≈ Rs 33 lakh)

Step 2: Balance Sheet Entry

Since the work performed exceeds billing:

Record as Current Asset

Construction in Progress (Asset)
   Costs in Excess of Billings .......... $40,000 (Rs 33 lakh)

This shows that the company is owed money for work already done but not yet billed.

Journal Entry (Optional Insight)

The asset arises automatically as part of the percentage-of-completion process, not a single standalone JE. But conceptually:

Dr Construction in Progress (CIP) ........... $360,000
     Cr Revenue from Long-Term Contract ..... $60,000
     Cr Cash/Accounts Payable ............... $300,000

Billings entry:

Dr Accounts Receivable ...................... $320,000
     Cr Billings on Construction Contract ... $320,000

Net CIP – Billings = Costs in Excess on balance sheet.