Definition

The completed contract method recognizes all revenue (and associated cost and profit) only when the contract is substantially complete. No revenue or profit is recorded during the job; everything is deferred until completion. It is used for tax purposes by certain contractors (under prior and sometimes current tax rules) and in limited circumstances for GAAP.

Why It Matters

Completed contract defers profit until the end, which can defer tax. Rules on who may use it for tax have changed; many contractors must use POC for tax. For GAAP, completed contract is allowed only in specific situations (e.g., short-term contracts). Contractors must know which method they use for book and tax and track costs and billings accordingly.

Field Example

Job runs 18 months; contract $200,000, total cost $160,000. Under completed contract, $0 revenue and $0 profit are recognized in months 1–17 (cost is capitalized in WIP or similar). In month 18 at completion, $200,000 revenue and $160,000 cost are recognized; profit $40,000 all in the final period.

Calculation / Formula (if applicable)

Revenue recognized = Contract value (at completion). Cost recognized = Total cost incurred (at completion). Profit = Revenue − Cost. Until completion, amounts are deferred (e.g., in asset/liability accounts for costs and billings).

Software Application

Support revenue recognition method per job (or company-wide): POC vs. completed contract. For completed contract, track cost and billing in WIP; at completion, post revenue and cost in one period. Report deferred amounts and completion date. Ensure tax reporting aligns with method elected.

Tooltip Version

Completed contract method means you don’t recognize any revenue or profit until the job is substantially complete; used in some tax and accounting situations.

Completed Contract Method