How does the percentage-of-completion method differ from the completed-contract method?

When revenue and profit hit the books. Under percentage-of-completion, a contractor recognizes revenue and profit gradually across the life of the job, in proportion to the work performed, so the income statement reflects the project as it is built. Under the completed-contract method, no revenue or profit is recognized until the project is substantially finished, so the work is invisible to the income statement until the end and then lands all at once. Percentage-of-completion is the standard for long-term construction contracts under US GAAP, because it matches revenue to the period the work was actually done. Completed-contract is limited to situations where the outcome genuinely cannot be estimated reliably, and a separate size-based exemption under the US tax rules lets smaller contractors use it as well.

How is percent complete measured for revenue recognition?

Most commonly by cost: the cost-to-cost method takes costs incurred to date divided by the total estimated cost of the job, and applies that percentage to the contract value to get revenue earned to date. If a $12.0M contract has incurred $5.4M of an estimated $10.8M total cost, it is 50 percent complete and has earned $6.0M of revenue. Alternatives measure progress by units completed or by labor hours or effort, which can be more accurate when cost is a poor proxy for progress, for example when expensive materials are delivered early. Cost-to-cost is the most widely used because the inputs are already tracked for cost control, but it has to be watched for distortions like front-loaded material purchases inflating the apparent percentage.

Is the percentage-of-completion method the same as EVM percent complete?

No, and conflating them is a common mistake. EVM percent complete is a project-control measure of physical, earned progress, used to compute cost and schedule performance against the baseline; it answers "how much of the work is done." The percentage-of-completion method is an accounting measure used to recognize revenue and profit; it answers "how much revenue has been earned." They often use similar cost-based math, and on a healthy job they move together, but they live in different systems for different audiences: EVM for the project team managing performance, POC for the accountants and the financial statements. A project can be 50 percent complete by cost for revenue recognition while its earned value tells a more nuanced story about whether that spending actually bought 50 percent of the progress.

Construction Glossary · Financial & Accounting

Percentage ofCompletion

A long job earns its revenue a month at a time, not all at the end. The percentage-of-completion method is how the books keep pace with the build.

Definition

The percentage-of-completion (POC) method is the accounting method that recognizes a construction contract's revenue and profit gradually as the work is performed, not all at once at the end. Under the cost-based approach, percent complete equals costs incurred to date divided by total estimated cost, and recognized revenue equals percent complete times the contract value. It is the standard revenue-recognition method for long-term construction contracts, and it is distinct from EVM percent complete, which measures physical progress for project control.

The cost-to-cost calculation

Costs incurred over total estimated cost gives percent complete; times the contract value gives revenue earned to date. On our project, 50 percent complete earns $6.0M of the $12.0M contract.

$5.4M

cost to date

$10.8M

est. total cost

50%

percent complete

50%

percent complete

$12.0M

contract value

$6.0M

revenue earned

Two accounting methods, one control measure

Percentage-of-completion and completed-contract are revenue-recognition choices. EVM percent complete is a different thing entirely, for the project team, not the books.

	Recognizes revenue	Answers	Audience
Percentage-of-completion	Gradually, as work is done	How much revenue is earned	Accounting / financials
Completed-contract	All at the end	How much revenue is earned	Accounting (short jobs)
EVM percent complete	Not a revenue measure	How much work is physically done	The project team

The control-side measure is EVM percent complete; earned revenue vs billed is the WIP schedule.

How POD relates to percentage-of-completion

POD already holds the inputs a cost-based percentage-of-completion calculation needs: the cost to date from your pay applications, the budgeted cost of the work, and the contract value with approved change orders, each individually authoritative and reconciled. Turning those into recognized revenue and profit is POD's documented work-in-progress and revenue-recognition methodology, a defined layer that sits beside the live EVM engine. POD does not post recognized revenue as a live figure today, and it is not your accounting system of record: revenue recognition belongs to your books. What POD gives the accountant is a trustworthy, reconciled source for the cost-to-date and budget inputs that method runs on.

Percentage-of-completion guide

Frequently asked questions

Earned revenue meets billed revenue

Once you know revenue earned, the next question is how it compares to what you have billed. That gap, over or under, is the WIP schedule.

WIP Schedule Back to the Glossary