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Percentage of Completion: Definition and Meaning
Definition
Percentage of completion is a method or concept used in long-term contract accounting in which revenue and costs may be recognized based on progress toward completing performance obligations, subject to the applicable accounting framework.
Why It Matters
Construction and other long-term contract businesses may need to assess project progress, estimated costs, contract terms, and the appropriate measurement of performance. The accounting treatment can affect reported revenue, profit, receivables, billings, and work-in-progress information.
The correct approach depends on the facts, the applicable accounting framework, contract provisions, and professional judgment. Companies should review these matters with qualified accounting advisors.
Example
A contractor may assess progress on a project using a cost-to-cost method or another approach appropriate to its contracts and reporting framework.
Related Terms
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