Definition
Percentage of completion (POC) is a method of recognizing revenue (and often expense) over the life of a long-term contract based on progress—e.g., cost-to-cost (cost incurred ÷ total estimated cost) or efforts-expended. It matches revenue to the period when work is done rather than at completion (completed contract method).
Why It Matters
POC smooths revenue and profit over the job and reflects economic reality for multi-period projects. It is required under GAAP for many construction contracts and affects financial statements and bonding. It also ties to progress billing and WIP: billed vs. earned vs. cost must be tracked to avoid over- or under-reporting.
Field Example
Job total contract $100,000; total estimated cost $80,000. Cost incurred to date $24,000. POC (cost-to-cost) = $24,000 ÷ $80,000 = 30%. Revenue to recognize = 30% × $100,000 = $30,000. So far, $30,000 revenue and $24,000 cost = $6,000 gross profit recognized. Compare to amount billed (e.g., $28,000) for WIP.
Calculation / Formula (if applicable)
POC % = Cost incurred to date ÷ Total estimated cost (cost-to-cost). Or POC % = Other measure of progress (e.g., labor hours, units). Revenue recognized = POC % × Total contract value. Gross profit recognized = Revenue recognized − Cost incurred to date (under cost-to-cost).
Software Application
Support POC method (e.g., cost-to-cost) per job. Track contract value, total estimated cost, cost incurred to date. Calculate POC % and revenue (and profit) to recognize. Compare to cumulative billing for overbillings/underbillings. Report by job and in total for financial and WIP reporting.
Tooltip Version
Percentage of completion (POC) means recognizing revenue as the job progresses (e.g., by cost incurred vs. total cost) instead of waiting until the end, so profit is reported in the right period.
Related Objects
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