Question

For what reasons should the percentage-of-completion method be used over the completed-contract method whenever possible?

Answer 1

The percentage-of-completion method is preferred over the completed-contract method due to the matching principle, progress tracking benefits, and financial reporting consistency.

Step-by-step explanation:

The percentage-of-completion method should be used over the completed-contract method whenever possible for several reasons:

1. Matching principle: The percentage-of-completion method allows for revenue and expenses to be recognized during the course of a long-term project, matching them to the periods in which they are incurred. This provides a more accurate representation of the financial performance of the project.
2. Progress tracking: This method allows for the tracking of progress and the estimation of costs throughout the project, providing better insights into the current status and future expectations.
3. Financial reporting consistency: The percentage-of-completion method is more consistent with generally accepted accounting principles (GAAP) and is preferred by financial reporting bodies, such as the Financial Accounting Standards Board (FASB), which ensures uniformity and comparability of financial statements.