The Completed-contract method is an

accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

method of work-in-progress evaluation, for recording long-term

contracts A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

GAAP Gaap (also ''Tap'', ''Coap'', ''Taob'', ''Goap'') is a demon that is described in demonological grimoires such as ''the Lesser Key of Solomon'', Johann Weyer's ''Pseudomonarchia Daemonum'', and the Munich Manual of Demonic Magic, as well as Jac ...

allows another method of

revenue recognition The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recog ...

for long-term construction contracts, the percentage-of-completion method. With this method, revenue is recognized when the contract is fulfilled. The contract is considered complete when the costs remaining are insignificant.

General description

Accounting for long term contracts can be done in two ways: through the completed-contract method and the percentage of completion method. The choice between the two depends on the provisions of SOP 81-1 from the AICPA. The completed-contract method recognizes income only when the contract is completed or substantially completed.

When to use

The completed-contract method is used when costs are difficult to estimate, there are many ongoing small jobs (one time work), and projects are of short duration. This method can be used only when the job will be completed within two years from inception of a contract.

Balance sheet presentation

*In current assets is shown excess of costs over billings: the current asset accounts are ''"due on accounts"'', a receivable account, and ''"construction in progress"'' ("CIP" - or ''"costs in excess of billings"''). *In current liabilities is shown the excess of billings over costs (''"progress billings"''): these are progress billings on uncompleted contracts in excess of costs.

References

Sources * Wiley IFRS 2015: Interpretation and Application of International Financial Reporting Standards, PKF International Ltd, , February 2015, 1032 Pages.

External links

Completed-contract method
{{Authority control Accounting systems Methodology