See Also:
Percentage Completion Method Example
Accounting Principles
Point of Sale Method (POS)
Installment Method
Completed Contract Method
Collection Method
Work Breakdown Structure (WBS)
Percentage Completion (POC) Method
Use the Percentage Completion (POC) method with construction based projects that extend over the course of several years. Furthermore, many accountants prefer the percentage completion accounting over the Completed Contract Method. It also paints a more realistic view of the company. Because the projects are usually long term lasting several years, it estimates completion for the company. So it shows revenues year by year than to just all of the sudden have one large inflow at the end where the project was completed.
Percentage Completion (POC) Method Formula
The Percentage of completion formula is very simple. First, take an estimated percentage of how close the project is to being completed by taking the cost to date for the project over the total estimated cost. Then multiply the percentage calculated by the total project revenue to compute revenue for the period. Then derive the construction income by subtracting the cost from the period revenue.
Use the following simplified equations for the percentage completion formula and other associated formulas:
Period Costs (annual , quarterly, etc.)/ Total Estimated Cost = Percentage Completed
Percentage Completed * Total Project Revenue = Period Revenue
Period Revenue – Period Costs = Project Income
