What does the cost comparison method of contract accounting combine?

The cost comparison method of contract accounting primarily combines the completed contract method and the percentage of completion method. This approach allows contractors to assess their financial performance based on the extent of work completed and the costs incurred up to a certain point.

The completed contract method recognizes revenue and expenses only when the contract is finished. It is useful for contracts with a short duration or where the outcome is uncertain until completion. On the other hand, the percentage of completion method recognizes revenue and expenses proportionately as the work progresses, which can provide a more current financial picture for long-term projects.

By combining these two methods, contractors can gain insights into their project's profitability and financial status at various stages, tailoring their accounting practices to better reflect ongoing project dynamics while still retaining the ability to delay recognition until the project concludes when appropriate. This dual approach helps in making informed financial decisions and effectively managing cash flow.