Completed-Contract Method

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Description of Completed-Contract Method. Explanation.



Completed-Contract Method

Definition Completed-Contract Method. Description

The Completed-Contract Method prescribes the accounting treatment of revenue and costs associated with long-term construction projects under U.S. GAAP, in which the outcome cannot be estimated reliably.

If the outcome of a construction project cannot be estimated reliably, U.S. GAAP requires the application of the Completed-Contract Method (please note that the application of this method is prohibited under IFRS).

Under this method, contract costs and related billings are reported as deferred items in the financial statements until the project is complete or substantially complete.

Although income is only recognized on completion, losses are to be recognized in their entirety as soon as their probable existence is known.

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