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How will an advance/initial investment for a construction contract be recorded?
E.g
A real estate company A sells houses, for which it gives out construction contracts to third parties B. According to the contract of $1,000 25% is to paid in advance and the rest is going to be valued using the percentage of completion method.
Will the $250 be recorded in assets as an advance?IF I have understood you correctly, this is not an estate agent that negotiates sales and purchases of houses / property on behalf of sellers and buyers
This is a house construction company
Am I correct?
When the $250 is paid, yes, that would be recorded as:
Dr Deposits paid to Construction Companies $250
Cr Cash $250However, that debit balance is only likely to be very temporary because, pretty much as soon as construction work is commenced, the liability to the constructor will quickly exceed that $250
In addition … accounting for construction contracts from the perspective of the purchaser is not likely to appear within any F7 exam in the near future
OK?
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