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EVALUATION OF REVENUE RECOGNITION METHOD
CONSTRUCTION CONTRACT PT. WAHANA MULTITRON
Nicholas1*, Syaiful2
Borobudur University, Jakarta, Indonesia12
nicholastan[email protected]1*, syaiful6[email protected]2
PAPER INFO ABSTRACT
Received: 14th
January 2023
Revised: 17th
January 2023
Approved: 20th
January 2023
Background: The completed contract method is a method that recognizes
the company's revenue and gross profit only when the contract or work is
completed. Contract revenue is recognized only to the extent that the costs
incurred are expected to be recovered. After all expenses are recognized,
profit is recognized.
Aim: The purpose of the study was to evaluate the method of recognizing
revenue for construction contracts at PT. Wahana Multitron whether the
revenue recognition method used was in accordance with accounting
standards and to find out when and how revenue from construction services
was recognized. The purpose of the study was to evaluate the method of
recognizing revenue for construction contracts at PT. Wahana Multitron
whether the revenue recognition method used was in accordance with
accounting standards and to find out when and how revenue from
construction services was recognized.
Method: The research was conducted by evaluating the parts related to
construction income, project costs, receipt of payment terms according to the
construction contract agreement and the completeness of the supporting
letters in carrying out the project.
Findings:. The results of this study indicate that the company already has
advantages such as a clear organizational structure and job description,
systematic cost allocation. However, there are still some weaknesses such as
errors in when to recognize construction revenue and errors in when to
recognize project costs.
KEYWORDS
Accounting Intermediatte , Revenue recognition,Contruction contract
INTRODUCTION
Profit is the goal of every company founded. Therefore, to achieve this goal, it is very
necessary to have the expertise of company managers to carry out accurate calculations
(Poernomo and Timur 2006).
By doing accurate calculations, the company's goals will be achieved. Within the
company there is a policy consisting of important functions to support the smooth operation of
the company (Arum Ardianingsih 2021). One of the important policy functions is how to
recognize revenue in a company. For a trading company, profit recognition is not a complicated
problem, but it is different from a service company in the construction sector. In a construction
company whose activities take more than one accounting period, the revenue recognition
method will be different (Halim et al. 2021). This is because the time for completing work is
not due at the end of the period. or contracts that are not always completed in one accounting
period.
Income is a very important element in a company. With income a company can continue
to operate. Besides that, income is also one of the important elements in the financial statements
because it is used as material to assess the success of the company (Hasan et al. 2022).
Definition of income according to (Lam and Lau 2009:329)
Evaluation Of Revenue Recognition Method Construction Contract
15 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
is as follows: "Revenue is the gross inflow of economics benefits during the period arising in
the course of the ordinary activities of an entity when those inflows result in increases in equity,
other than increases relating to contributions from equity participants."
Definition of income according to (Needles and Powers 1995:15) Is as follows:”
Revenue are the increase in stockholder equity that results from operating business”
Based on the above definition, it can be concluded that income is an increase in gross
inflows in owner's equity originating from economic benefits during the period that arise in
normal activities or business activities to earn income.
According to PSAK 34 (Soraya n.d.)
Contract revenue consists of:
1. Revenue value agreed in the contract; and
2. irregularities in contract work, claims, incentive payments;
a. to the extent that it is possible to generate income and
b. Can be measured reliably"
According to (Stice and Stice 2013:15) the definition of cost is as follows:
“Costs it defined as an outflow or other property or the use of debt or a combination of both
during the period resulting from the delivery or production of goods,delivery of services,or the
implementation of pther activities that make operations the mainor central continued from the
business units”
According to PSAK 34 in (Pratiwi, Yuliandari, and Muslih 2016) contract costs include:
"Contract costs include costs that can be distributed to a contract during the period from the
date the contract was obtained until the final completion of the contract. However, costs that
are directly related to a contract and incurred to obtain a contract are also included as part of
the contract costs if these costs can be identified separately and can be measured reliably and
it is probable that the contract will be obtained. If costs incurred to acquire the contract are
recognized as an expense in the period in which they occur, then these costs are not included
in the contract costs when the contract is acquired in the following period."
A construction contract according to PSAK 34 (Faradiba and Rochayatun 2020) is as
follows:
1. Contracts for the provision of services that are directly related to the construction of assets,
for example the services of project managers and architects and
2. Contracts for the destruction or restoration of assets and restoration of the environment after
the destruction of assets"
The revenue recognition principles according to Kieso, Weygandt, and Warfield (Kieso
et al. 2019:955) are as follows:
"The revenue recognition principles indicate that revenue is recognized when it is probable that
the economic benefits will flow the company and the benefits can be measured reliably"
The above definition describes the principle of revenue recognition to recognize revenue when
it is probable that the economic benefits will flow to the enterprise if the benefits can be
measured reliably.
According to Kieso, Weygandt, and Warfield (Kieso et al. 2019:976) there are two
accounting methods that can be used to recognize revenue in a construction company,
namely:
1. Contract method completed
2. Percentage of completion method
Based on information obtained from research conducted on PT. Wahana multitron, the authors
know that the company has not used revenue calculation with revenue recognition methods in
accordance with accounting standards due to lack of knowledge of construction contract
Evaluation Of Revenue Recognition Method Construction Contract
16 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
revenue recognition methods. There are two PT. Wahana multitron projects which started in
2011 with a completion period of 45 days for each project.
The definition of the completed contract method according to Kieso, Weygandt, and
Warfield (Kieso et al. 2019:967) which is referred to as the cost recovery method is as
follows:
"In some cases contract revenue is recognized only to extent of costs incurred that are expected
to be recoverable.Once all costs are recognized,profit is recognized.The company accumulates
constructions costs in an inventory account ( construction inprocess) and it accumulates
progress billings in a contra inventory account( Billing on construction in Process)"
The understanding of the percentage of completion method according to Kieso, Weygandt,
and Warfield (Kieso et al. 2019:967) is as follows:
“Companies recognize revenues and gross profits each period based upon the progress of the
constructions that is percentage of completion.The company accumulates contructions costs
plus gross profit earned a date in a inventory account ( Construction in Process) ,andi t
accumulates progress billings in a contra inventory account ( Billing on Construction in
Progress)”
Based on the above definition, the completed contract method is a method that recognizes the
company's revenue and gross profit only when the contract or work is completed. Contract
revenue is recognized only to the extent that the costs incurred are expected to be recovered.
After all expenses are recognized, profit is recognized.
The percentage of completion method is the company recognizes revenue and gross profit each
period based on construction progress, which is a percentage of completion (Nugrahani 2017).
The company accumulates construction costs plus gross profit earned to date in the inventory
account (Construction in progress), and accumulates the terms in the contract inventory account
( Billing for construction contracts). The completed contract method is used if a company has
a short-term contract, while the percentage-of-completion method is used for long-term
contracts.
METHOD
The method of this research used by author is Qualitative case study. The theoretical
basis and framework used includes theories put forward by experts which are u sed as the basis
for analyzing and finding answers to problems that occur such as income theory, revenue
recognition methods, and theories related to the construction service company's income
measurement method (Abdussamad and SIK 2021).
Research is a systematic investigation to increase the amount of knowledge and is also a
systematic and organized effort to investigate certain problems that require answers (Machmud
2016). Research is also an activity that searches, collects, processes, and analyzes data a way
that is done to learn new facts is expected to be useful for solving a problem. Based on the
scope and research selected, the object of research in the preparation of this journal is the
construction revenue owned by PT Wahana Multitron. recognized by PT Wahana Multitron.
Sources of information regarding the data needed in this journal are as follows:
1. Library research is everything that researchers do to gather information relevant to the
topic or problem to be studied, the information is obtained from scientific books, research
reports, scientific essays, theses and dissertations, regulations, statutes, yearbooks,
encyclopedias, and other written and printed sources
2. Field research is an activity to collect data by conducting a direct review of the company
that is the object of research.
Evaluation Of Revenue Recognition Method Construction Contract
17 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
The formulation of the problem in this research is:
1. How is the application of revenue recognition accounting for PT Wahana Multitron's
construction services?
2. What method of revenue recognition is appropriate for the construction service
company PT. Wahana Multitron?
3. How is the recording in the financial statements after using the appropriate revenue
recognition method for PT Wahana multitron?
RESULTS AND DISCUSSION
The problem that occurs at PT Wahana Multitron lies in the revenue recognition and
project cost recording system which is not systematic, PT Wahana Multitron has not used the
revenue recognition method in accordance with applicable accounting standards. Revenue is
recognized by PT Wahana Multitron every time it receives cash from a client. At the time of
receipt of payment, the company's finance department records it by debiting the cash/bank
estimate and crediting the estimated revenue. expenses and has not made an expense journal
for expenses. All costs incurred are recorded when incurred. The calculation of costs for project
work is carried out at the head office. If the branch office needs funds for project work, the
head office will first calculate the funds needed for the branch office (Kurniadi 2020).
To focus more on the existing problems, the PT Wahana Multitron project will be
discussed as follows:
The project of PT Wahana Multitron with PT Dayamitra Telekomunikasi which started
on June 28, 2011 with a period of 45 days to build the Kubang Raya handsome site.
1. The first payment for the Kubang Raya handsome site is 40% of the price of the
implementation work paid when the work progress reaches 50% or when the tower
foundation work is completed, it is received on July 20, 2011.
2. The second payment for the Kubang Raya handsome site of 60% of the price of the
implementation work when the progress of civil mechanical engineering (CME) has
reached 100% received on August 19, 2011
Table 1 ( Total costs for Kubang Raya Tampan per month)
Description
Jun-11
Jul-11
Agu-11
cost to date
Rp59.760.650
Rp134.461.463
Rp104.581.137
total costs June 2011-
August 2011
Rp298.803.250
Cost recording
1 Juni 2011
Voucher
total
bkk
1101021
Rp8.415.000
bkk
1101022
Rp2.880.000
Source :PT Wahana Multitron
Calculation of payment for the project term of PT Dayamitra Telekomunikasi
The following is the calculation of the payment for the PT Dayamitra Telekomunikasi
project term which is named the Kubang Raya handsome site:
1. The first payment of 40% of the implementation price of work progress reaches 50% or
when the tower foundation work has been completed received on July 20, 2011 = 40% x
Rp. 390.587.988 = Rp. 129,431,596 .
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18 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
2. While the second payment was received when the progress of the CME work had reached
100% on August 19, 2011 at 60% of the implementation price = 60% x Rp.390.587.988 =
Rp. 261.156.392
The journal entry of PT Wahana Multitron when receiving 40% of the implementation
price is as follows:
July 20, 2011:
Bank/ cash Rp 129.431.596
Pendapatan Rp 129.431.596
On August 19, 2011 at the time of receiving the second payment of 60% of the price of the
implementation work is as follows
August 19, 2011 :
Bank/Cash Rp 261.156.392
Piutang Rp 261.156.392
On August 11, 2011, when the contract was completed, PT Wahana Multitron made a
journal of acknowledgment of receivables for the second stage of payment that had not been
received from PT Dayamitra Telekomunikasi amounting to 60% of the contract value, which
was Rp. 261,156,392. So that on August 19, 2011 PT Wahana Multitron made a journal for the
settlement of accounts receivable.
At the time the contract was completed on August 11, 2011, PT Wahana Multitron had not
yet received the second payment of 60% of the implementation price of Rp 261,156,392. So
PT Wahana Multitron makes a journal to record receivables of 60% of the implementation
price. The journal that is made to record receivables is as follows:
August 11, 2011:
Account Receivable Rp 261.156.392
Revenue Rp 261.156.392
During the completion of the project, PT Wahana Multitron did not make a journal to
acknowledge that the contract had been completed. At the time of project completion, PT
Wahana Multitron will make a journal to acknowledge the receivables for the second stage of
payment that have not been paid at the time the contract is completed. However, if the second
payment has been paid by the time the contract is completed, PT Wahana Multitron will not
make any entries during the completion of the contract.
Presentation of the project financial statements of PT Dayamitra Telekomunikasi
The calculation of revenue, costs, and gross profit for the Kubang Raya Tampan site by PT
Wahana Multitron is as follows:
Description
2011
Revenue on june
Rp -
Expenses
-Rp 59.760.650
Gross profit/loss
-Rp 59.760.650
Revenue July
Rp 129.431.596
Expenses
-Rp 104.581.137
Gross profit/loss
Rp 24.850.459
Revenue on august
Rp 261.156.392
Expenses
-Rp 134.461.463
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19 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
Description
2011
Gross profit/loss
Rp 126.694.929
The presentation of PT Wahana Multitron's financial report for the Kubang Raya Tampan site
as of December 31, 2011 is as follows:
Income statement
PT Wahana multitron
Contract revenue
Rp390.587.988
Construction costs
Rp298.803.250
Gross profit/loss
Rp91.784.738
The project cost of PT Dayamitra Telekomunikasi during the project period consisted of 3
months, namely in June of Rp. 59,760,650, July of Rp. 104,581,137 and the cost for August of
Rp. 134,461,463 . The total cost per month is IDR 298,803,350.
In recording the costs incurred during the PT Wahana Multitron project, they only
recorded in the ordinary daily cash book and had not made an expense journal for costs. All
costs incurred by PT Wahana Multitron are recorded when incurred. According to accounting
standards in the completed contract method, costs are recognized when the contract has been
completed. Costs incurred during project work are entered into the construction in progress
account in cash, accounts, payable, material.
Journal to record expenses during project implementation
Juni 2011 :
Construction in Process Rp 59.760.650
Cash,Account Payable,Materials Rp 59.760.650
Juli 2011 :
Construction in Process Rp 104.581.137
Cash,Account Payable,Materials Rp. 104.581.137
August 2011:
Construction in Process Rp. 134.461.463
Cash,Account Payable,Materials Rp 134.461.463
Term payment calculation
PT Wahana multitron does not make journals for billing invoices, the journals that should be
made for billing invoices for the payment of the first payment stage of 40% are as follows:
July 2011;
Account Receivable Rp 129.431.596
Billing on Construction in Process Rp 129.431.596
The invoice collection journal for the second stage of payment of 60% of the contract value of
Rp. 261,156.392 is as follows:
July 2011;
Account Receivable Rp . 261.156.392
Billing on Construction in Process Rp . 261.156.392
Evaluation Of Revenue Recognition Method Construction Contract
20 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
On July 20, PT Wahana Multitron received an invoice for the payment of the first stage of 40%
of the contract value of Rp. 129,431,596, it is necessary to record an invoice settlement journal
for the payment of the first stage. The journal for payment of invoices for payment of 40% of
the contract value is as follows:
July 20, 2011 :
Cash Rp 129.431.596
Account receivable Rp 129.431.596
On August 19, 2011 PT Wahana Multitron received an invoice for payment of the second stage
of 60% of the contract value of Rp. 261.156,392, so it is necessary to record a payment invoice
journal for the second stage of payment. The journal for settlement of invoices for the second
stage of payment is as follows:
August 19,2011 :
Cash Rp 261.156.392
Account receivable Rp 261.156.392
Project completion
According to the completed contract method, the journal entries required when the contract is
completed are the journal to recognize the costs and related costs incurred during the project
and the journal to acknowledge that the contract has been completed.
On August 11, 2011 when the contract expired, PT Wahana Multitron did not make a journal
entry to recognize costs and related costs incurred during the project and a journal entry for the
completion of the contract. The journal entries that should be made at the end of the contract
are as follows:
Journal to recognize costs and related expenses:
Construction in Process ( Gross profit) Rp 91.784.738
Contruction expenses Rp 298.803.250
Revenue from short term contract Rp 390.587.988
Journal to record the completion of the contract:
Billings On Construction in Process Rp.390.587.988
Construction in Process Rp.390.587.988
The project costs that are accumulated in the Construction in Process account if posted to the
general ledger will be equal to the contract value which will become contract revenue.
Furthermore, the Construction in process account will be closed to the Billing on Construction
in process account for the amount of payment of the invoice received, which is the contract
value.
Evaluation of PT Wahana Multitron's construction contract revenue recognition method
PT Wahana multitron recognizes contract revenue when it receives cash from the client. At the
time of receipt of payment, the finance department credits the revenue. The records that have
been made by the company are recognized and recorded as cash in the income. Then on August
Evaluation Of Revenue Recognition Method Construction Contract
21 Return: Study of Management, Economic and Bussines, Vol 2 (No 01), Jan 2023
19, 2011 when receiving a bill payment of 60% of the contract value, PT Wahana Multitron
recorded a cash account in accounts receivable
From the journal entry, it can be seen that PT Wahana Multitron has recognized the payment
of 40% of the contract value as revenue on July 20, 2011 amounting to Rp 129,431,596
while on August 19, 2011 PT Wahana Multitron recorded a cash/bank journal on receivables
to recognize the settlement of receivables from PT Dayamitra Telekomunikasi on August 11,
2011 for the second payment of 60% of the contract value of Rp 261,156,391.
According to the completed contract method Revenue should be recognized when the project
is completed on August 11 , 2011 . Should have received the first payment of 40% of the
contract value of rp 129,431,596 on July 20, 2011, PT Wahana Multitron had not made a
journal entry to recognize its revenue, because on July 20, 2011 the contract had not yet
expired.
CONCLUSION
The results of the research obtained show that the company already has advantages, such
as a clear organizational structure and job description, as well as systematic financial
distribution. However, there are still some weaknesses in the company, such as mistakes in
when to admit construction revenue and mistakes when to recognize project costs.
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