Under the Completed Contract Method, when are revenue and costs recognized?

Under the Completed Contract Method, when are revenue and costs recognized?

• A. At the point of contract completion
• B. When billings occur
• C. Over the duration of the contract
• D. At interim milestones

Answer: (A)

Under the Completed Contract Method, revenue and costs are recognized only when the contract is completed. While the job is in progress, costs are accumulated in a construction-in-progress (WIP) account and no revenue or gross profit is reported on the income statement. When the contract is finished, the full contract price is recognized as revenue and the actual costs incurred are recognized, producing the project’s profit (or loss). If the contract isn’t completed by the end of the period, no revenue or gross profit is recognized, and the costs remain in WIP until completion. This differs from recognizing revenue as billings occur or recognizing revenue over the contract duration, which are methods used in other approaches.

Under the Completed Contract Method, revenue and costs are recognized only when the contract is completed. While the job is in progress, costs are accumulated in a construction-in-progress (WIP) account and no revenue or gross profit is reported on the income statement. When the contract is finished, the full contract price is recognized as revenue and the actual costs incurred are recognized, producing the project’s profit (or loss). If the contract isn’t completed by the end of the period, no revenue or gross profit is recognized, and the costs remain in WIP until completion. This differs from recognizing revenue as billings occur or recognizing revenue over the contract duration, which are methods used in other approaches.