Completed Contract Method
An accounting approach delaying revenue and expense recognition until a project is completed, used primarily for short-term contracts with uncertain outcomes.
Completed Contract Method
An accounting approach for long-term contracts that delays recognition of revenues and expenses until the contract is completed or substantially completed, regardless of progress during the contract period.
For instance, a construction company building a $5 million office complex over 18 months using the completed contract method would record no revenue or project expenses on its income statement until the building is completed and accepted by the customer, at which point it would recognize the entire $5 million in revenue and all associated costs.
This method provides greater certainty in revenue recognition by eliminating estimates required in percentage-of-completion accounting. It’s generally allowed only for short-term contracts or when outcomes cannot be reliably estimated. While simplifying accounting during the contract period, it can create significant income fluctuations between periods as large projects complete. For tax purposes, it defers income recognition and tax liability until completion. Under current accounting standards (ASC 606), this method has limited application, as revenue recognition based on performance obligations satisfied over time is preferred when certain criteria are met.