In the Acme Construction scenario, construction expenditures should be debited when:

In the Acme Construction scenario, construction expenditures should be debited when:

• A. When the bill is submitted by the contractor
• B. When the project is completed
• C. When the bill is approved for payment
• D. When cash is paid

Answer: (C)

In government accounting, construction costs are recognized when the government incurs the obligation to pay for the work, not when cash is paid or when the project is finished. The moment the bill is approved for payment creates a measurable liability to the contractor and the cost can be capitalized as Construction in Progress (an asset). Debiting Construction in Progress reflects the incurred construction cost, and crediting a payable records the obligation to pay. Submittal of the bill doesn’t by itself establish the liability, and waiting until project completion delays recognition of the costs. Paying cash records the outflow, but the expenditure should be recognized when the obligation is approved, which is the appropriate timing for debiting the construction expenditures.

In government accounting, construction costs are recognized when the government incurs the obligation to pay for the work, not when cash is paid or when the project is finished. The moment the bill is approved for payment creates a measurable liability to the contractor and the cost can be capitalized as Construction in Progress (an asset). Debiting Construction in Progress reflects the incurred construction cost, and crediting a payable records the obligation to pay.

Submittal of the bill doesn’t by itself establish the liability, and waiting until project completion delays recognition of the costs. Paying cash records the outflow, but the expenditure should be recognized when the obligation is approved, which is the appropriate timing for debiting the construction expenditures.