Percent-complete accounting

Percent-complete accounting is a revenue-recognition method used for long-term contracts. Instead of waiting until a multi-month job is done to book any income, you recognize a portion of the contract's revenue in each period based on how far along the work is. A job that is 40% complete recognizes roughly 40% of its expected revenue.

The most common way to measure how far along a job is uses costs. Under the cost-to-cost approach, percent complete = costs incurred to date / total estimated costs. So if you have spent $40,000 of an estimated $100,000 in total costs, the job is treated as 40% complete.

The contrast is the completed-contract method, which recognizes nothing until the job is finished. Completed-contract is simpler, but it makes a contractor's financials lurch — long stretches of no income punctuated by big jumps at closeout — which is why percentage-of-completion is the standard for longer construction work.

Start with the cost-to-cost ratio: divide the costs you have incurred to date by the total costs you estimate the job will take. That percentage is your completion figure. Keeping the total-cost estimate honest and updated is the part that takes discipline, because the whole calculation rides on it.

Then apply that percentage to the contract value to get revenue earned to date: revenue recognized = total contract revenue x percent complete. Subtract the revenue you have already recognized in prior periods to find what to recognize this period.

Profit follows the same logic. Gross profit recognized to date is roughly (contract revenue x percent complete) minus costs incurred to date. As long as your total-cost estimate holds, profit is spread smoothly across the life of the job instead of landing in one lump.

It is easy to confuse the two, but they answer different questions. Progress billing is about cash — what you invoice the customer as the job hits milestones. Percent-complete accounting is about books — how much revenue and profit you recognize on your financials for a period. You can be billed ahead of or behind the work you have actually earned.

That gap has names. When you have billed more than you have earned, it shows up as overbillings (billings in excess of costs); when you have earned more than you have billed, it is underbillings. Watching that relationship tells you whether your cash position is borrowing from future work or quietly financing the customer.

Simple Contractor CRM today handles the billing side — progress draws, retainage, deposits, and change orders, with payment recording and accounts-receivable tracking. The formal percentage-of-completion entries on your books typically live in your accounting system; QuickBooks and similar integrations are on the roadmap, and you should confirm revenue-recognition treatment with your accountant.