How the Percentage of Completion Method recognizes income as construction work progresses on Arkansas projects.

Outline in brief

• Hook: For big Arkansas construction projects, when income shows up in the books matters.

• What the Percentage of Completion method is and why it matters

• How it stacks up against other methods (cash, accrual, completed contract)

• The mechanics: steps you take to compute revenue and profit as work progresses

• A clear numeric example to ground the idea

• Why this approach fits long-running projects in Arkansas and what NASCLA-focused contractors should watch

• Real-world cautions and practical tips

• Wrap-up: the big picture of steady, honest financials during a build

Let’s talk money that grows with the build

If you’ve got your hands full with a big commercial, multi-month residential, or infrastructure project in Arkansas, you’ll notice something right away: the clock isn’t the only thing ticking. Progress and profits don’t always line up with when you bill or when you pay a supplier. That’s where the Percentage of Completion method comes in. It’s a way to recognize income as work gets done, not as invoices come due or as cash lands in the bank. In plain terms: revenue is earned along the way, in step with the project’s progress.

What exactly is the Percentage of Completion method?

Think of it as a way to match the effort you’re putting into a job with the money you’re earning from that job. Under this method, you estimate how much of the project is complete and then recognize a corresponding portion of the total contract revenue. You do the same with costs: you record the costs you’ve actually incurred to date. The result is a revenue figure that grows as the project moves forward, and a profit figure that reflects what you’ve earned minus what you’ve spent so far.

This is different from the cash method, where revenue is only recorded when cash arrives, and from the accrual method, where revenue is booked when earned and costs when incurred, regardless of cash flow. It’s also different from the completed contract method, where you don’t recognize revenue or profit until the project is finished. The percentage approach is a steady, “progress-to-profit” view, which many long-running construction jobs in Arkansas benefit from.

How does it compare to other methods in practical terms?

• Cash method: Simple, but can hide ongoing profitability on long jobs. You might look fine on a cash basis, even when the project is delivering value, because cash flow and work in progress aren’t aligned.

• Accrual method: Closer to reality, recognizing revenue when earned and costs when incurred. For many contractors, this is a starting point, but it doesn’t always line up with project-stage reality on long-term builds.

• Completed contract method: Keeps revenue and profit off the books until the end. This can smooth income statements in the short term, but it hides progress and can produce big swings in profitability once a project ends.

Why the percentage method fits long projects common in Arkansas

Arkansas projects—whether a hospital wing, a school addition, or a highway-related undertaking—often extend across multiple reporting periods. The percentage of completion approach gives a clearer, more timely view of how the project is performing. It helps owners, lenders, and your own team see:

• How much of the revenue you’ve earned, relative to what you planned

• How much cost has actually been incurred to date

• How profitable the job looks at a given point in time

• How changes in scope or estimates will ripple through the numbers

In short, it reduces the sticker shock of “we’re halfway done but the bottom line says we’re not.” For Arkansas contractors navigating a mix of public and private sector work, this method offers a way to report ongoing performance without waiting until the curtain falls on the final bill.

How the numbers actually get calculated (step by step)

Here’s the practical workflow you’d typically use to apply this method on a real project:

1. Establish total contract value and total expected costs.

2. Estimate the percentage of work completed to date. This is usually based on costs incurred to date divided by total expected costs, or, in some cases, based on physical progress measurements.

3. Recognize revenue to date: percentage of completion × total contract value.

4. Recognize costs to date: actual costs incurred so far.

5. Record the difference as profit (revenue to date minus costs to date).

6. Update estimates as the project progresses, and adjust revenue and profit accordingly.

A concrete example to anchor the idea

Let’s keep things simple but meaningful. Suppose a contractor is on a project with a total contract value of $2,000,000 and an expected total cost of $1,500,000. If costs incurred to date are $600,000, you’re about 40% through the project (600,000 / 1,500,000 = 0.40).

• Revenue recognized to date: 0.40 × 2,000,000 = $800,000

• Costs incurred to date: $600,000

• Profit recognized to date: $800,000 − $600,000 = $200,000

As the project progresses and costs rise or estimates shift, you’d update the numbers. If, a few months in, you revise total estimated costs to $1,700,000 and costs incurred to date become $1,000,000, you’d recalculate the percentage complete and adjust revenue and profit accordingly. The key is to keep this in step with what’s actually being worked on and paid for.

What Arkansas contractors should watch for

• Change orders and scope adjustments: If the scope grows, estimated total costs and total contract value change. You’ll need to refresh the percentage complete and the related revenue and profit accordingly.

• Estimation risk: If estimated total costs turn out to be higher than initially planned, profit can shrink or even turn negative. It’s smart to revisit estimates regularly and adjust expectations.

• Documentation: Good job costing is essential. You’ll want solid records of costs incurred, as well as credible progress measurements that reflect actual work completed.

• Cutoffs and timing: Align your month-end cutoffs with project milestones so you don’t have a mismatch between work performed and the accounting period you’re closing.

Common pitfalls and how to sidestep them

• Overestimating progress: Rushing to recognize revenue before the project is truly measurable in progress can distort the picture. Ground your percentage in verifiable milestones or cost data.

• Underestimating costs: If you’re optimistic about final costs and that estimate proves too low, you’ll inflate current profits. Keep a conservative mindset and document changes.

• Poor change order management: A messy change-order process can lead to inconsistent revenue recognition. Tie changes to updated cost and revenue projections as you go.

• Inadequate internal controls: If costs and progress data aren’t validated, you risk inflating income or deferring it incorrectly. Regular reconciliations help keep things honest.

Practical tips for staying aligned with NASCLA-style expectations (Arkansas context)

• Build a reliable job costing system: Separate job costs from overhead, track direct costs by project, and have a clear method for allocating indirect costs.

• Update estimates as you go: Treat the project budget as a living document. Every change should trigger a recalculation of percent complete and revenue.

• Keep stakeholders in the loop: Lenders, owners, and your team benefit from transparent progress reporting. Clear charts and summaries go a long way.

• Maintain clean documentation: Keep contracts, change orders, cost records, and progress photos organized. They’re your defense when numbers get scrutinized.

• Align with GAAP expectations: The percentage of completion method is a staple for long-term construction contracts under generally accepted accounting principles. If you’re juggling multiple reporting frameworks, note where the method applies and where you switch.

Real-world sense checks you can relate to

• It’s familiar to construction crews: When a crew completes a concrete pour, a wall frame, or a trench, you’ve earned a portion of the contract revenue tied to that stage. It feels natural to reflect that on the books as you go.

• It supports cash flow planning: If you know you’re 60% through a project, you can forecast revenue and plan purchases or subcontractor timelines with less guesswork.

• It resonates with lenders: Banks and bond overseers like to see ongoing profitability, not just end-of-project profits. A progressive recognition schedule makes the project’s economics clearer.

Bringing it home

For Arkansas contractors—whether you’re tackling a hospital expansion, a bridge approach, or a new hotel—percentage of completion isn’t just a technical accounting label. It’s a practical way to tell the true story of a project in motion. It aligns revenue with work performed, gives a steadier view of profitability, and helps everyone involved make better decisions along the way.

If you’re navigating NASCLA framework requirements or simply building a solid financial habit for long-term contracts in Arkansas, this method offers a straightforward path to consistent, honest reporting. It is the kind of approach that helps you see the finish line clearly, while you’re still laying the foundation today.

In the end, construction is about progress—on the ground and on the balance sheet. The percentage of completion method puts both on the same track, so your books reflect reality as work happens, not just when invoices land. And that kind of clarity is worth its weight in concrete.