ContractorsPercentage of Completion vs Completed Contract: How Contractors Should Show Revenue in the Books

A note before you read: This page is about your financial statements: how revenue shows up on the P&L and balance sheet you use to run the business and share with lenders and sureties. How you report for tax can be different and is a question for your CPA. ABFI doesn't prepare taxes.

Why this matters more than it sounds

A contractor's P&L can tell two completely different stories about the same month, depending on the method. Imagine a $500,000 job that runs from September to March. Under completed contract, your fall statements show costs going out the door with almost no revenue against them, then March shows a huge profit. Under percentage of completion, each month shows its share of revenue and profit as the work happens.

If you're deciding whether to hire, bid more work or buy equipment, the second picture is the one you can act on.

The two methods in plain language

Percentage of completion. Each month, you estimate how far along each job is, then record that share of the contract's revenue. The most common way to measure progress is cost-to-cost: costs spent to date divided by total estimated costs.

Completed contract. You hold costs on the balance sheet as work in progress and record no revenue or profit until the job is substantially complete. Then you move everything to the P&L at once.

Side by side

A worked example

Here's one job, with round numbers made up for the example.

• Contract price: $500,000
• Estimated total cost: $400,000, so estimated gross profit is $100,000
• Costs spent to date at month end: $160,000
• Amount billed to the customer to date: $230,000

Percentage of completion (cost-to-cost):

1. Percent complete = $160,000 ÷ $400,000 = 40%
2. Revenue earned to date = 40% × $500,000 = $200,000
3. Gross profit to date = $200,000 − $160,000 = $40,000
4. You've billed $230,000 but only earned $200,000, so you're over-billed by $30,000. That $30,000 sits on the balance sheet as a liability (often called "billings in excess of costs and estimated earnings"), because you've collected for work you haven't done yet.

If you'd billed only $170,000, you'd be under-billed by $30,000, which shows as an asset: work done that you haven't invoiced yet.

Completed contract:

1. Revenue to date: $0
2. Gross profit to date: $0
3. The $160,000 of costs sits on the balance sheet as work in progress, and the $230,000 billed sits against it as billings. Nothing reaches the P&L until the job is done.

Same job, same month. One method shows $40,000 of profit you've genuinely earned. The other shows none.

Our WIP schedule guide walks through over- and under-billing across a whole list of jobs.

What about a job that's losing money?

Under either method, when you can see a job will lose money overall, the expected loss should be recorded as soon as you know it, not spread out or saved for the end. This is one of the main reasons good estimates matter: a job that quietly slides from profit to loss should show up in the books the month it happens.

Where ASC 606 fits

ASC 606 is the US accounting standard for revenue from contracts with customers, and it applies to private companies that follow GAAP [1]. It doesn't use the names "percentage of completion" or "completed contract". Instead it asks whether you transfer control of the work to the customer over time or at a single point in time [1].

For most construction work done on a customer's property, control passes as you build, so revenue is recognized over time, measured by progress. In practice that usually looks like percentage of completion with cost-to-cost [1]. Recognizing everything at the end is only appropriate when the over-time criteria aren't met. If your statements need to follow GAAP, for a bank covenant, a surety or an audit, your outside accountant will tell you which applies to your contracts.

Which method should you use?

• Jobs longer than a month or two, or crossing a year end: percentage of completion gives a truer picture.
• You have a line of credit, bonding or a lender asking for a WIP schedule: percentage of completion, because that's what they're reading.
• Very small jobs that start and finish within the month: the two methods give nearly the same answer, so simplicity wins.

Whichever you use, your books need to be on accrual, not cash: accrual vs cash accounting.

What you need in place for percentage of completion

1. Job costing that's actually right. Every labor hour, material purchase and sub invoice coded to the right job. See job costing for contractors and our click-by-click job costing setup in QuickBooks Online.
2. Current cost estimates. The project manager updates the estimate to complete each month. Stale estimates make the percentages wrong.
3. A chart of accounts built for it, with balance sheet accounts for over-billings and under-billings. See chart of accounts for contractors.
4. A monthly WIP schedule and one adjusting entry per month to bring revenue in line with it.
5. A clean handoff to your CPA at year end: bookkeeper and CPA handoff.

Software matters too. QuickBooks Online handles job costing well for many contractors, while larger firms may need construction-specific software. Compare options in best accounting software for contractors.

Keep reading

• WIP schedule for construction: over-billing and under-billing explained
• Job costing for contractors
• Best bookkeeping services for contractors

Sources

1. FASB, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, asc.fasb.org/606. Checked November 6, 2026.