When it comes to setting up and managing a business, every situation has its own quirks and foibles. That partially due to the type of business: Someone that sells clothing doesn’t have the same operating model as someone who runs a roofing business. It’s also due to whatever makes management comfortable with the variety of accounting methodologies available to them. That includes recognizing revenue.
One of the types of revenue recognition that’s widely used depending on the type of business is called percentage of completion. This method recognizes revenue based on how much of a project is complete. So, for example, if that roofing company has a large job that’s half complete, they’re going to recognize half of the expenses and half of the revenue. What other factors come into play for the percentage of completion methodology and when should you consider it? This graphic helps to explain it.
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Percentage of Completion Method