Percentage Of Completion Method

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Cash Accounting

    An accounting method where receipts are recorded during the period ...
  2. Accounting Method

    The method by which income and expenses are reported for taxation ...
  3. Accrual Accounting

    An accounting method that measures the performance and position ...
  4. Revenue

    The amount of money that a company actually receives during a ...
  5. Expense

    1. The economic costs that a business incurs through its operations ...
  6. Wealth Management

    A high-level professional service that combines financial/investment ...
RELATED FAQS
  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. What is the difference between a write-off and a writedown?

    In terms of accounting, a write-down is performed to reduce the value of an asset to offset a loss or expense. A write-down ... Read Full Answer >>
  6. What are some good online resources for me to learn about Generally Accepted Accounting ...

    The two definitive authorities on developing and interpreting the U.S. generally accepted accounting principles, or GAAP, ... Read Full Answer >>
Related Articles
  1. Economics

    Calculating Net Realizable Value

    An asset’s net realizable value is the amount a company should expect to receive once it sells or disposes of that asset, minus costs from its disposal.
  2. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  3. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  4. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  5. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  6. Fundamental Analysis

    What is Year-to-Date?

    Year-to-date (YTD) is a term that describes financial results from the beginning of the current year up to the day the financial number is reported.
  7. Economics

    What is Managerial Accounting?

    Managerial accounting is internally-based accounting that helps managers measure the results of their decisions.
  8. Credit & Loans

    What's a Hire Purchase?

    Hire purchase is a term used in Great Britain to describe an installment plan payment arrangement.
  9. Economics

    How Do Accountants Use the Equity Method?

    The equity method is an accounting technique used by firms to assess the profits earned by their investments in other companies.
  10. Economics

    Explaining Goodwill Impairment

    Goodwill impairment results when the fair market value of a company’s goodwill asset is less than its historical cost.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!