Percentage Of Completion Method


DEFINITION of 'Percentage Of Completion Method'

An accounting method in which the revenues and expenses of long-term contracts are recognized yearly as a percentage of the work completed during that year. This is the opposite of the completed contract method, which allows taxpayers to defer the reporting of any income and expenses until a long-term project is completed. The percentage of completion method of accounting is commonly used in construction projects.

BREAKING DOWN 'Percentage Of Completion Method'

The percentage of completion method of accounting requires the reporting of revenues and expenses on a yearly basis, as determined by the percentage of the contract that has been fulfilled. The current income and expenses are compared with the total estimated costs to determine the tax liability for the year. For example, a project that is 30% complete in year one and 45% complete in year two would only have the incremental 15% of revenue recognized in the second year.

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    1. The economic costs that a business incurs through its operations ...
  5. Accrual Accounting

    Accrual accounting is an accounting method that measures the ...
  6. Accountant

    A professional who performs accounting functions such as audits ...
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  1. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
  2. What are the differences between percentage of completion and the completed contract ...

    Each business is required to choose an accounting method to report income and expenses. It is important to fully understand ... Read Full Answer >>
  3. What's the difference between weighted average accounting and FIFO/LILO accounting ...

    The main difference between weighted average cost accounting, LIFO, and FIFO methods of accounting is the difference in which ... Read Full Answer >>
  4. How does accrual accounting differ from cash basis accounting?

    The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized. ... Read Full Answer >>
  5. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
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    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>

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