Generally accepted accounting principles gaap wip
However, while FASB and IASB have placed certain requirements on how you can recognize revenue, the IRS allows for different methods, including the percentage of completion method. We break this down in our article on revenue recognition for contractors but it’s important to note that while many contractors still use POC methods to calculate recognized revenue, they must follow the standards outlined in ASC 606 in their financial reporting. While POC is one of the best ways to track and measure longer jobs, generally accepted accounting principles (GAAP) no longer allows percentage of completion accounting to be used in its purest form. Instead of calculating a lump sum at the end of a contract (using the completed contract method), POC lets you pull revenue and job cost data on a monthly basis, or as a job reaches certain milestones. The percentage of completion method (POC) is a common accounting process that contractors use on long-term contracts to determine income and expenses based on the percent of work completed. What is the Percentage of Completion Method in Construction? With consistent POC reporting, you can make sure your reported revenue and cost numbers match as closely as possible with the actual billing and spending on the job. POC is particularly helpful for long-term projects and is calculated either monthly, or as a job reaches certain milestones. Percentage of completion (POC) is a method of accounting that contractors use to determine income and expenses based on how far along a job is.
In this guide we’ll walk through how to calculate revenue and expenses using the POC method and how this plays into the way you recognize revenue in the accounting period. This is where percentage of completion (POC) accounting can be extremely helpful. It’s easy to find yourself in a position where you’ve overbilled or underbilled, especially on projects that have gone on longer than you might have expected. If you’ve worked on long-term jobs that stretch out over months, you know just how difficult it can be to keep up with income and expenses as the job progresses.