Contractor Finance Glossary
What is Percentage of Completion (POC)?
Definition reviewed .
Also called: POC, percentage-of-completion method
Percentage of completion recognizes revenue as a qualifying contract is performed over time. Cost-to-cost is one input method for measuring that progress; it requires reliable estimates and adjustments for costs that do not depict performance.
Under an appropriate over-time recognition method, progress rather than invoice timing drives revenue. In an illustrative qualifying contract with no required adjustments, 60% eligible cost progress would recognize 60% of its transaction price. The contract must first qualify for over-time recognition.
A stale total-cost estimate can overstate progress and pull revenue forward. Significant uninstalled materials or wasted costs can also inflate a simple cost ratio without depicting performance. Topic 606 calls for appropriate adjustments, not an automatic rule to treat every purchase as completed work.
For construction contracts within the applicable loss guidance, anticipated losses may need recognition when identified rather than being spread through progress. Confirm the contract, scope and treatment with the reporting accountant.
How it is calculated
Adjusted cost-to-cost progress = eligible cost incurred divided by current eligible total estimated cost. Current-period revenue = cumulative revenue earned under the applicable method minus revenue recognized previously. Apply required uninstalled-material, inefficiency and contract-loss adjustments separately.
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