Mastering WIP Reporting With Percentage of Completion Method in Construction
Keeping track of income and expenses for long-term construction projects can be overwhelming. Fortunately, the CFMA has recommended a method of accounting that makes this task much easier.
This method is known as the percentage of completion.
With over 8,200 members in the US and Canada, CFMA offers educational activities, publications, and networking. They are a reputable association that promotes best practices in financial management and works to meet the needs of construction financial experts.
In this article, we'll talk about what the percentage of completion method is, how it works, and a few examples of how this method is used in real life. By the end, you'll have a clear understanding of how this method can help you manage your finances with ease.
So, let's dive in!
In this article, you will learn about:
What Is the Percentage of Completion Method?
While WIP is a schedule, the percentage of completion method is a way to recognize revenue. Its job is to keep track of revenue for long-term projects based on how much work has been done during the period. Under the percentage of completion, contractors record recognized revenue that is earned regardless of the amount billed.
How to Calculate the Percentage of Completion - The Cost-to-Cost Method
The most common formula used to determine a project's percentage of completion is the "cost-to-cost" method. It involves comparing estimated and actual project costs.