Which statement correctly describes a characteristic of cost reporting using the percentage of completion method?

Which statement correctly describes a characteristic of cost reporting using the percentage of completion method?

• A. It requires only historical costs
• B. It ignores contract terms
• C. It guarantees exact costs at project completion
• D. It relies on estimates that can change

Answer: (D)

The main idea is that this cost-reporting approach recognizes revenue and costs based on how far the project has progressed, using estimates of the total costs to complete the contract. Those total cost estimates are revisited and can change as new information becomes available, so the reported costs and profits are not fixed and may be adjusted in later periods. That’s why the statement describing it as relying on estimates that can change is the best fit. In contrast, it’s not limited to historical costs—you also include updated estimates of what future costs will be. Contract terms influence how revenue is recognized under this method, rather than being ignored. And it doesn’t guarantee exact costs at project completion; final costs can differ from initial estimates.

The main idea is that this cost-reporting approach recognizes revenue and costs based on how far the project has progressed, using estimates of the total costs to complete the contract. Those total cost estimates are revisited and can change as new information becomes available, so the reported costs and profits are not fixed and may be adjusted in later periods. That’s why the statement describing it as relying on estimates that can change is the best fit.

In contrast, it’s not limited to historical costs—you also include updated estimates of what future costs will be. Contract terms influence how revenue is recognized under this method, rather than being ignored. And it doesn’t guarantee exact costs at project completion; final costs can differ from initial estimates.