What should Hayes Construction report in 2024 based on incurred costs and estimates?

In a construction accounting context, recognizing profit based on total estimated costs is a critical concept when accounting for long-term projects. In the percentage-of-completion method, a construction firm like Hayes Construction recognizes revenue and profit proportionally as the job progresses based on the costs incurred relative to the total estimated costs.

When costs are incurred, they provide an indication of the level of completion of the project. If costs incurred indicate substantial progress toward completion, the company can estimate how much profit should be recognized at that time. This recognized profit reflects the work completed and aligns with the matching principle in accounting, which states that expenses should be matched with the revenues they help generate.

Thus, if Hayes Construction has incurred significant costs in 2024 and has reliable estimates indicating likely profitability, they should report that recognized profit based on the total estimated costs to accurately reflect their financial position and performance during the period.