Completed Contract Method of Accounting in the Construction Industry
Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
The completed contract method of accounting recognizes revenue and the associated costs once the project is complete. This is one of the two popular accounting methods used in the construction industry. For residential contractors, the completed contract method may have a slight tax advantage by deferring revenue recognition but is generally not considered the best method of accounting in the construction industry.
The completed contract method is different than traditional accounting. Both costs and draws are posted onto the balance sheet in the asset and liabilities section respectively. Once the project is completed all the draws and final unpaid or earned profit is posted to the profit and loss statement along with all the associated costs. The following describes how costs and draws are accumulated on the balance sheet and the once the project is completed, how those costs and revenues are transferred to the profit and loss statement.
Accumulation of Costs and Draws on the Balance Sheet
Once a contract is signed,
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