Revenue recognizedthis period
Earned revenue is a running total.
Your job has earned $46.2M since it started. Your income statement needs the $8.4M it earned this month. Percentage of completion hands you a running total; the period figure is a subtraction, and when the estimate behind that total moves, the whole correction lands in a single month. This guide covers the subtraction, the catch-up, and the margin trend the two produce.
What current-period revenue is
Current-period revenue is the revenue a contract adds to the income statement in one reporting period. Percentage of completion yields a cumulative amount, revenue recognized from contract start to the reporting date; the period amount is the change in that cumulative figure since the prior period closed. Cost and gross margin are derived the same way.
Every other page in this library stops at the cumulative figure, because that is what the measure of progress produces. The percentage-of-completion guide derives it and the WIP schedule sets it against billings. Neither is what a controller posts at month end. The journal entry, the monthly job cost report, and the comparison against last month all need the increment, and the increment behaves differently from the total it is cut from.
The behaviour that matters is this: a cumulative figure smooths, a period figure does not. Under ASC 606-10-25-35 a revision to the measure of progress is a change in accounting estimate under ASC 250, recorded in the period it is made. The AICPA Revenue Recognition guide’s engineering and construction chapter, and the implementation guidance from CICPAC and CFMA, all describe the same mechanic: the cumulative amount is re-stated to the new estimate, and the difference flows through the current period in full.
Period equals cumulative minus prior
Period revenue is cumulative revenue at this period end minus cumulative revenue at the prior period end. Period cost is the same subtraction on cost incurred, and period gross margin is the difference between the two results. There is no separate period formula; the period is whatever the running total moved by.
The job this guide follows is an $84.0M contract with an estimated cost at completion of $70.0M, so the expected margin is $14.0M, or 16.7 percent. At the end of month 5 it had incurred $31.5M, 45 percent of the estimate, and recognized $37.8M. At the end of month 6 it had incurred $38.5M, 55 percent, and recognized $46.2M. The right-hand column is what month 6 actually booked.
| Month 5, cumulative | Month 6, cumulative | Month 6, this period | |
|---|---|---|---|
| Cost incurred | $31.5M | $38.5M | $7.0M |
| Percent complete (cost-to-cost) | 45% | 55% | +10 points |
| Revenue recognized | $37.8M | $46.2M | $8.4M |
| Gross margin | $6.3M | $7.7M | $1.4M |
| Margin rate | 16.7% | 16.7% | 16.7% |
Two things to notice. The period margin rate, 16.7 percent, equals the job’s lifetime rate, and it will every month for as long as the estimate at completion stays at $70.0M. And the $7.0M of cost that drove the 10 points of progress carried exactly its share of the margin with it: cost-to-cost does not know which month a dollar was spent in, so a steady estimate yields a steady rate.
Why an estimate change hits one period
When the estimated cost at completion changes, cumulative revenue is recomputed at the new estimate as of the period end. Prior periods are not reopened. The difference between the old cumulative figure and the new one, the catch-up, is recorded in the period of the change, on top of that period’s normal increment. ASC 606-10-25-35 and ASC 250 require it.
In month 7 the project team re-prices the remaining work and the estimate at completion moves from $70.0M to $74.0M. The margin at completion falls from 16.7 percent to 11.9 percent of the contract. Cost incurred reaches $48.1M, which against the revised estimate is 65 percent complete, so cumulative revenue is $54.6M. The month earned another $8.4M of revenue, exactly as month 6 did. It also recognized a loss.
| Month 6, cumulative | Month 7, cumulative | Month 7, this period | |
|---|---|---|---|
| Estimated cost at completion | $70.0M | $74.0M | revised this period |
| Margin at completion | 16.7% | 11.9% | −4.8 points |
| Cost incurred | $38.5M | $48.1M | $9.6M |
| Percent complete (cost-to-cost) | 55% | 65% | +10 points |
| Revenue recognized | $46.2M | $54.6M | $8.4M |
| Gross margin | $7.7M | $6.5M | −$1.2M |
Progress from 55 to 65 percent earns margin at the revised rate: 10 percent of the new margin at completion is +$1.0M. This is what a steady month looks like at the new estimate.
Every point already recognized is re-priced at the lower margin. Fifty-five percent of the margin the revision removed is −$2.2M, and all of it lands in month 7. Net for the period: −$1.2M on $8.4M of revenue.
The job did not lose money in month 7. It discovered in month 7 that six months of margin had been recognized at a rate the work would not support, and the accounting put the correction where the discovery was made. The mechanism is symmetrical: an estimate that improves releases a catch-up gain in the same way. Either direction, the cumulative figure moves a little and the period figure moves a lot. How the cumulative margin erodes over a job’s life is a separate subject, profit fade, covered in the percentage-of-completion guide.
Per-period gross margin, read as a trend
Period gross margin is period revenue minus period cost, expressed as a rate on period revenue. While the estimate holds, the rate is flat at the job’s expected margin. Any month that departs from the flat line is an estimate change landing, which makes the sequence of period rates the earliest income-statement signal that a job’s outlook has moved.
The cumulative margin rate on the example job reads 16.7 percent at month 6 and 11.9 percent at month 7: a drop, but a cushioned one, because six months of history are averaged in. The period rate reads 16.7 percent and then negative 14.3 percent. Same job, same month, same revision. One number absorbs the news; the other announces it. Three patterns cover most of what the period sequence will show.
Period margin runs at the job’s estimated rate month after month. The estimate is holding and the cumulative figure is telling the truth. Nothing to do but keep reading it.
A single month far off the rate is an estimate change landing. Find the revision, confirm it is in the forecast, and expect the next period to return to the new rate.
Successive months each a little below rate mean the estimate is being revised in small steps. The cumulative margin still looks acceptable; the period trend says it will not stay that way.
The staircase, and the riser you book
Cumulative revenue climbs one tread per month. Each landing is the running total; each riser is the revenue one period recognized, and the riser is what the income statement reads. Months 1 to 5 are history, in grey. Month 6 is the current period, and the lit slice above the prior landing is its $8.4M. Month 7 first draws the riser the old estimate would have cut, then the revised estimate cuts it shorter: the notch between the two is the catch-up, and it belongs to month 7 alone.
The staircase shows the revenue increment; this view shows the margin inside it, read the way a controller reads month end. On the example job at month 6 the gross margin recognized this period is 16.7 percent, flat against the period before, because the estimate at completion has not moved. Net of the job’s share of indirect cost the period is 11.2 percent, also flat. The company holds its jobs to an 18 percent target, and the card flags this one at risk against it.
Profit Margins
A month-old number vs a current one
The period increment is a subtraction between two dates, and it is only as honest as the figures on each date. If cost-to-date is the ledger as of the 20th and the estimate at completion is last quarter’s, the subtraction is between two different months and the increment it produces belongs to neither.
- ·Cost-to-date is pulled from the accounting system after the period has closed
- ·The estimate at completion is whichever forecast file was updated last
- ·Contract value and approved changes are reconciled from a folder of PDFs
- ·The increment is computed once, late, and compared to a prior figure built the same way
- ·POD holds cost-to-date, contract value, and billings current from the files your team already submits
- ·Cost-to-date, contract value, approved changes, and billed-to-date stay current per project
- ·Both ends of the subtraction describe the same month
- ·The recognition calculation and the ASC 606 judgment stay with your controller and CPA
POD does not compute recognized revenue or the period increment for you. Working from the pay apps, cost reports, and budget files already moving through a job, it holds cost-to-date, contract value, approved changes, and billings current per project, so the two figures the subtraction needs are from the same month. The increment itself, and the estimate behind it, remain the controller’s. It pairs with the estimate at completion, which supplies the denominator every period figure depends on, and the WIP schedule, where the increment meets what was billed.
The construction finance library
The hub above this guide: how cost, progress, revenue, billing, and the WIP position connect across one job.
The top pillar: where the period increment sits beside the cost, schedule, and change controls that frame a live job.
The decision layer: ASC 606 five steps, over time or at a point in time, and the choice of an input or output measure.
How the percent that drives every period figure is measured, and why uninstalled materials and rework are carved out.
The cumulative mechanics this guide subtracts from: cost-to-cost percent complete, earned revenue to date, and profit fade.
Where period revenue meets the pay application: the earned-to-billed bridge and the contract asset or liability it leaves.
Current-period revenue questions
What is current-period revenue under percentage-of-completion?▾
Current-period revenue is the revenue a contract adds to the income statement in one reporting period. Percentage of completion produces a cumulative figure, revenue recognized from contract start to the reporting date; the period figure is the change in that cumulative figure since the prior period closed. On the job in this guide, cumulative revenue moved from $37.8M to $46.2M in month 6, so month 6 recognized $8.4M.
How do you calculate this-period revenue?▾
Take percent complete at the end of this period, multiply by the transaction price to get cumulative revenue, then subtract the cumulative revenue reported at the end of the prior period. Do the same with cost: cumulative cost this period minus cumulative cost last period is period cost, and period revenue minus period cost is period gross margin. Every input uses the current estimate at completion, which is why an estimate change flows straight through the subtraction.
Why does an estimate change hit the current period so hard?▾
Because percentage of completion is cumulative, and ASC 606-10-25-35 treats a change in the measure of progress as a change in accounting estimate under ASC 250, recorded in the period of the change rather than restated backward. Revising the estimated cost at completion re-prices every point of progress already recognized, and the whole adjustment lands in one month alongside that month’s normal increment. A modest change in the lifetime estimate can swing one period’s margin from positive to negative.
What is period gross margin and why track the trend?▾
Period gross margin is period revenue minus period cost: the margin recognized in one reporting period rather than since inception. When the estimate holds, it runs at the job’s expected margin rate every month. When it departs from that rate, something in the estimate moved, and the period figure shows it months before the cumulative margin visibly bends. Reading the period rate as a trend is the earliest income-statement signal that a job’s health is changing.
Is current-period revenue the same as what was billed this month?▾
No. Billing follows the pay application and the schedule of values; revenue follows the measure of progress and the current estimate. A month can bill more than it earns or earn more than it bills, and the difference accumulates on the balance sheet as a contract asset or a contract liability. Period revenue goes to the income statement; the pay application goes to receivables. The WIP schedule is where the two are reconciled, and that bridge has its own guide.
How does POD relate to period revenue?▾
POD does not compute recognized revenue or the period increment in your account; that calculation, and the ASC 606 judgment behind it, remain your controller’s and CPA’s call. What POD keeps current is the inputs the increment is derived from. From the pay apps, cost reports, and budget files your team already files, it holds cost-to-date, contract value, approved changes, and billed-to-date up to date per project, so the month-end subtraction runs on this month’s figures rather than last month’s.
POD keeps both ends of the subtraction current
Begin with the free budget tracker, then let POD keep the cost, contract value, and billings from your jobs’ own pay apps and cost reports current, so every figure is this month’s when the period increment is struck.