The cost comparison method blends completed contract and percentage-of-completion methods.

Outline: The cost comparison method in contract accounting

• Hook: Why construction numbers matter—cash flow, profits, and staying solvent

• Core idea: The cost comparison method blends two different ways to recognize revenue and costs

• What is the completed contract method? When it fits, what changes in the books

• What is the percentage of completion method? How it keeps the current picture of a long project

• Why mix them? Real-world projects aren’t one-size-fits-all

• How the blend works in practice: a simple example and key calculations

• Practical implications: cash flow planning, profitability insight, and risk management

• Common questions and guardrails: when to apply, data needs, and pitfalls

• Tools and resources: software and techniques to support these methods

• Takeaway: choose a plan that matches project type, timing, and risk tolerance

Article: Understanding the cost comparison method: when completed contract meets percentage of completion

If you’ve ever stood on a site at the end of a long day and wondered how the money lines up with the work you’ve done, you’re not alone. Contractors face a tricky dance: some jobs finish fast, others stretch on for years. The cost comparison method in contract accounting makes sense of that variation by combining two familiar approaches. The idea is simple, even if the math can get a bit fiddly: recognize revenue and costs in a way that fits how a project actually unfolds.

Two methods, one practical goal

Let me lay out the core idea in plain terms. The cost comparison method blends the completed contract method with the percentage of completion method. That’s the combination you’ll see in many Arkansas contractor practices, where projects range from quick turnarounds to long, complex builds. By using both, you can tell a more honest story about how a project is performing, both in terms of what you’ve spent and what you’ve earned so far.

Completed contract method: finish line thinking

Here’s the thing about the completed contract method. Revenue and expenses aren’t recognized until the contract is finished. In other words, you don’t book profits as you go; you wait until the job is complete and then record the total revenue and total costs. This approach works well when a project is short, the outcome is uncertain until the last moment, or when reliable estimates of progress are hard to come by.

Why use it? Cash flow is under your control until completion. You don’t have to juggle ongoing revenue that could flip if the scope changes. But there’s a trade-off: your financial statements can look a bit flat in the middle of a long project, because you’re delaying the revenue you’ve earned as you go along.

Percentage of completion: a running snapshot

Now, contrast that with the percentage of completion method. Under this approach, you recognize revenue and expenses proportionally as the work progresses. If you’ve completed 40% of a project, you book roughly 40% of the expected profit. This gives a current financial picture—your cash flow, your margins, and your job cost to date—while the project is still underway.

What drives this method? You typically measure progress in a way that’s reliable: billable milestones, physical completion, or cost-to-cost progress. The core idea is to match revenue with the costs you’ve incurred and the work you’ve completed to date. It can be a lifesaver for long-term jobs, because your books reflect reality, not just the final finish line.

Why combine them? Real projects aren’t all-or-nothing

Most construction portfolios blend both methods because not every job fits neatly into one box. Some projects start with great clarity and end with surprises. Others are short and straightforward but carry a few uncertain elements along the way. The cost comparison method lets you adapt. You can apply completed contract treatment to portions where outcomes are uncertain or where the scope is highly variable, and switch to percentage of completion where progress is measurable and reliable.

Think of it as a practical toolkit for different project phases. Early on, you may prefer the certainty of completing the contract later. As the project moves forward and you can estimate costs with greater confidence, you can shift to recognizing revenue as you earn it. The blend helps you balance caution with current insight, which, in turn, supports smarter decisions about pricing, subcontracting, and cash flow management.

A simple way to picture the blend

Imagine a long commercial building project that runs two years. In year one, a chunk of work is defined but not yet predictable—change orders may come in, weather may bite, and labor hours can swing. The completed contract portion gives you a safe anchor: you don’t rush to book revenue until you know the whole deal will actually pencil out.

As year two unfolds, you’ve established a reliable cost base, the remaining work is clearer, and you can measure progress more confidently. Here’s where the percentage of completion comes in: you recognize revenue and costs in line with how much of the work is finished. If you’re halfway done, you book roughly half the anticipated profit. The mix lets your statements reflect both the project’s current reality and the ultimate outcome.

The mechanics behind the scenes

A key tool in this mix is tracking progress against costs. The cost-to-cost method is a common way to gauge percentage of completion: costs incurred to date divided by total estimated costs. If you’ve spent $2 million of an anticipated $4 million, you’re at 50% completion. That tells you how much revenue and gross profit to recognize now, while you also keep an eye on the final numbers as estimates firm up.

Other practical steps include:

• Keeping tight change-order records. Every change can shift costs and timelines, so you need clear documentation.

• Regularly revisiting estimates. As you move from uncertainty to clarity, revise totals and expectations.

• Aligning with project milestones. Tie revenue recognition to measurable steps so the accounting mirrors the actual progress.

Why this matters in day-to-day operations

The blended approach isn’t just about compliance; it’s about management clarity. When you can see where you stand in real time, you’re better equipped to manage risk, plan cash flow, and steer negotiations with clients or subs. Here are a few implications that tend to matter most on the ground:

• Cash flow planning: You’ll know when to expect payments and how much cash you’ll need to cover costs as the project evolves.

• Profitability insight: By comparing costs to earned revenue at different stages, you catch margin patterns early—so you’re not surprised when a job wraps up.

• Change order discipline: The more disciplined you are about tracking changes, the more reliable your progress metrics become.

• Tax timing and GAAP consistency: The tax rules and accounting standards you follow will shape how you apply these methods. Always align with the standards that guide your books and talk to a qualified CPA or financial advisor to stay compliant.

A practical example you can relate to

Suppose you’re managing two Arkansas projects at the same time: a small interior remodel and a multi-building commercial project. The remodel is quick and its scope tends to stay stable, so you lean on the completed contract method for that one. You book revenue only after the remodel finishes, which fits the short timeline and reduces the risk of revenue misstatements.

The commercial project, on the other hand, stretches across multiple phases and suppliers. You’ve got a reliable cost base, decent visibility into remaining work, and frequent milestones. Here, you apply the percentage of completion method to reflect progress as you go. Revenue and costs are recognized as you hit those milestones, giving a more current snapshot of profitability and cash needs.

Seeing the forest and the trees

The beauty of the cost comparison method is that it keeps the big picture in view while letting you zoom in on the daily realities of a job. It’s a balanced approach that many contractors use to navigate the messy middle of a project—the changing scope, the weather delays, the late design approvals that throw schedules off.

If you’re new to the concept, think of it like a weather forecast for your profits: some days are sunny in terms of early revenue, other days are cloudy as estimates shift. The blend helps you plan around both, instead of being blindsided when things change.

Questions you might still have (and solid guardrails)

• When should I apply each method? Use completed contract for parts of a project where outcomes are uncertain or where finish-and-record is the safest bet. Use percentage of completion when progress is reliable and costs can be measured with confidence.

• What data do I need? Regular progress measurements, up-to-date cost records, and a clear line of sight to total estimated costs. Change orders should be tracked meticulously.

• What are common pitfalls? Underestimating the impact of changes, failing to update cost totals, and delaying revenue recognition beyond what progress supports. Keep the estimates honest and revisit them often.

Tools that can help

Many contractors lean on familiar software to keep these rules straight. QuickBooks and Sage 300 (now Sage X3 in some markets) offer job costing modules that support both completed contracts and percentage-of-completion calculations. ERP systems like Oracle NetSuite or Microsoft Dynamics can handle more complex project portfolios with real-time dashboards. Even a well-structured Excel workbook can do the job if you keep formulas transparent and your data clean.

Bringing it home

The Arkansas construction landscape rewards clarity and steadiness. The cost comparison method gives you a practical framework to reflect the reality on site and the reality of the ledger. By combining completed contract and percentage of completion treatments, you’re not choosing between two extremes—you’re choosing a pragmatic path that respects the timing of cash flow, the pace of work, and the realities of change.

So next time you’re reviewing a project’s numbers, ask yourself: where is the progress actually happening, and how reliable are the cost estimates for the remaining work? If you can answer those questions clearly, you’re already on the right track. And remember, the goal isn’t just to file neat numbers—it’s to understand the health of the project, keep the cash moving, and stay prepared for whatever the job throws your way.

If you’d like to explore these methods further, consider talking with a construction-focused accountant who gets the nuances of Arkansas projects. A good partner can help you tailor the blend to your specific mix of short jobs and long, complex builds, ensuring your financials stay honest, useful, and ready for whatever comes next.