Companies must recognize the entire expected loss on an unprofitable contract in the current period under the percentage-of-completion method but not the completed-contract method.

Question

Quizplus · Accepted Answer

Under the percentage-of-completion method, companies recognize revenues, expenses, and profits each period based on the progress of the construction (or contract), which may include recognizing expected losses immediately. However, under the completed-contract method, companies defer all revenue, expense, and profit recognition until the contract is completed, at which point any expected losses are recognized in full.

Companies Must Recognize the Entire Expected Loss on an Unprofitable