Completed-Contract Method

What is Completed-Contract Method?

The completed-contract method is an accounting method that is used to recognize revenue from long-term construction contracts. Under this method, revenue from a contract is not recognized until the contract is completed, and expenses are recognized as they are incurred.

The completed-contract method is typically used for contracts that are expected to take a long time to complete, such as contracts for building construction or infrastructure projects. It is based on the idea that it is difficult to accurately estimate the total cost and revenue of a long-term contract, and that it is more accurate to recognize the revenue and expenses of the contract as they are actually incurred.

Under the completed-contract method, the total profit or loss from a contract is recognized in the period in which the contract is completed, rather than being recognized on a periodic basis as the contract progresses. This can result in fluctuations in the reported profit or loss from one period to the next, as the profit or loss from a particular contract may not be recognized until the contract is completed.

Overall, the completed-contract method is an accounting method that is used to recognize revenue and expenses from long-term construction contracts, and it is based on the idea that it is more accurate to recognize these items as they are actually incurred.