Why is construction-in-progress increased by the annual recognized profit on long-term construction contracts?
A) Because the contract price has increased.
B) Because the cost of the project is reduced.
C) Because work has been done.
D) Because the project's value is increased above cost.

Question

Quizplus · Accepted Answer

Construction-in-progress represents the cost of construction work that has not yet been completed. However, as work is done and progress is made, the value of the project increases above its cost. This increase in value is recognized as profit, which is then added to the construction-in-progress account to reflect the higher value of the project. Therefore, the annual recognized profit on long-term construction contracts increases the construction-in-progress balance.

Why Is Construction-In-Progress Increased by the Annual Recognized Profit on Long-Term