What is the percentage-of-completion method primarily used for?

The percentage-of-completion method is primarily utilized for recognizing revenue related to long-term contracts, particularly in industries such as construction, shipbuilding, and other projects that span over multiple accounting periods. This method allows companies to recognize revenue in relation to the progress made on a contract rather than waiting until the project is fully completed.

By using the percentage-of-completion method, companies can report revenue more accurately as work is performed, which provides a clearer picture of financial performance and project status. The calculation typically involves estimating the total costs and comparing the costs incurred to date with the total estimated costs for the project, helping businesses align their revenue recognition closely with their actual performance.

This approach contrasts sharply with other methods, such as recognizing revenue only upon completion, which would not provide timely information about ongoing projects. It also differs from the processes related to depreciation, credit risk evaluation, or inventory tracking, which serve different financial reporting and management purposes.