Percentage-of-Completion Accounting
A Plain-English Guide for Contractors
Ask five contractors how a job is going, and you ' ll often get five different answers depending on what they ' re looking at: cash in the bank, invoices sent, or the feeling in their gut. None of those tell the full story. That ' s where percentage-ofcompletion accounting earns its keep.
A WIP schedule tracks, for every active job: total contract value, estimated costs to complete, costs incurred to date, billings to date, and the resulting over- or under-billing position.
What Percentage-of-Completion Actually Means
At its core, POC accounting matches revenue and costs to the actual progress of a job, rather than waiting until the project is finished to record anything. If a contract is 40 % complete based on costs incurred, the contractor recognizes roughly 40 % of the expected revenue and profit on the income statement, even if final billing hasn ' t caught up yet.
For most long-term contracts, this isn ' t optional. Generally accepted accounting principles( GAAP) and IRS rules for long-term contracts often require POC treatment once certain revenue thresholds are met. But even for contractors who technically qualify for the completed contract method, POC accounting usually gives a more honest, useful view of where things stand.
Why It Matters Beyond the Balance Sheet
Percentage of Completion matters especially from anyone outside the company looking in. Bonding agents and bankers rely on accurate, current financials to gauge whether a contractor can take on new work. A WIP schedule built on solid POC data tells that story clearly. One built on guesswork raises questions at exactly the moment a contractor needs confidence, not scrutiny.
The WIP Schedule Is Where This Gets Real
The work-in-progress schedule is the engine behind POC accounting, and it ' s also where most of the trouble starts.
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