When using the percentage-of-completion method, at which point is revenue recognized?

The percentage-of-completion method is utilized primarily in long-term construction contracts to recognize revenue more accurately throughout the life of a project. Under this method, revenue is recognized as the work is completed or as measurable milestones are achieved. This aligns with the concept of recognizing revenue based on the transfer of control rather than waiting until the project is fully completed.

Revenue recognition occurs gradually through the life of the project based on the extent of performance obligations fulfilled at any given time. As specific benchmarks or progress milestones are reached—whether by measuring costs incurred relative to total expected costs or through an output method like surveys of performance—it allows for a reflection of the work done at that moment. This dynamic approach provides a more realistic and timely reflection of revenue that is consistent with the underlying economic realities of the contract.

In contrast, recognizing revenue only at the end of the contract, upon completion of installation, or when progress billings are issued does not capture the incremental value being delivered while the project is underway. This can lead to significant discrepancies in financial reporting and performance evaluation throughout the duration of a contract.