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PERSONS SERVICES CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 10 Revenue and Cost Recognition (Continued) Changes in estimated job profitability resulting from variable consideration (such as incentives for completing a contract early or on time, penalties for not completing a contract on time, claims for which the Company has enforceable rights, or contract modifications/change orders in which the scope of modification has been approved, but the price has not been determined or approved) are accounted for as changes in estimates in the current period, but limited to an amount that will not result in a significant reversal of revenue in future periods. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Selling, general, and administrative costs are charged to expense as incurred. The Company generally warranties its work for one year after the date of acceptance. Warranty costs for the year ended December 31, 2022, were immaterial. The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the balance sheet. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. Generally, billings from disaster recovery projects occur subsequent to revenue recognition, resulting in contract assets. In contrast, billings on industrial and commercial projects generally exceed revenues earned which allow the company to receive advances or deposits from customers, resulting in contract liabilities. Contract assets decline as contracts near completion and work can be invoiced. Contract liabilities are decreased as revenue is recognized and as the contracts near completion. The contract asset is captioned in the balance sheet as, "costs and estimated earnings in excess of billings on uncompleted contracts." The contract liability is captioned, "billings in excess of costs and estimated earnings on uncompleted contracts." The beginning and ending contract balances were as follows: 12/31/2022 12/31/2021 26,233,115$ 16,539,767$ 10,272,650$ 9,308,115$ 3,829,153$ 3,738,234$ Receivables Costs and estimated earnings in excess of billings on uncompleted contracts Billings in excess of costs and estimated earnings on uncompleted contracts