We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Percentage-Of-Completion Method?

Jim B.
Updated Feb 28, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The percentage-of-completion method is the standard practice of accounting used for businesses or individuals who enter into contracts that span several years. This method is most often associated with construction projects to accurately determine the costs and profits within one year of a multi-year contract. It is called the percentage-of-completion method because it measures the part of the project already completed in terms of the estimated costs of the entire project and the amount of the contract itself. Performing this method requires dividing the costs used in a single year by the estimated total costs and then multiplying that number by the total estimated gross profit.

It's not uncommon for construction projects to run over a course of several years, with each year presenting different costs to the company undertaking the project. For instance, the prices of material used in the construction can change from year to year, or weather complications may cause a delay in the project. These possibilities require an accounting process that takes these variables into consideration. The percentage-of-completion method provides for these variables and narrows down the accounting of costs and profits to the period being reported.

Imagine, for example, that Company A has entered into a contract that pays them $10,000 US Dollars (USD) to complete a construction project, while the estimated cost of completion for the project stands at $8,000 USD. This means that the company's expected total estimated gross profit for the project is $2,000 USD, or $10,000 USD minus $8,000 USD. In a single year of this project, a company amasses costs of $4,000 USD.

To reach the percentage-of-completion costs incurred, the $4,000 USD is divided by the $8,000 USD total cost estimate, which comes to 0.50. This means that the company has incurred 50 percent of the total estimated costs of the entire project in this single year. The 0.50 is then multiplied by the total estimated gross profit to determine the company's profits for the year. In this example, 0.50 is multiplied by $2,000 USD, meaning that the company's gross profit for the year in question is $1,000 USD.

When using the percentage-of-completion method, a company must construct its accounting journal to accurately reflect the data being used. Construction in Process (CIP) should be the part of the ledger that reflects the costs incurred up to the current point. There should also be a contra account reflecting the amount of billing the company has already issued to their clients. In this way, the journal will show the gross profits, expenses, and revenues for each year of the contract.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.
Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.