Percentage of Completion Method Definition and Examples

Having calculated the percentage of completion, the next step is to apply this percentage to the estimated total revenue from the project. Using the percentage of completion formula in construction requires the routine input of specific data from several sources. This leaves considerable room for error and inaccuracies due to missing paperwork and late payments.

You use a relative cell reference to cell B2 because you want it to get changed when you copy the formula to other cells of column B. But you enter $B$10 as an absolute cell reference because you want to leave the denominator fixed on B10 when auto-filling the formula down to row 9. In fact, the above example is a particular case of calculating percentages of a total. Now, let’s investigate a few more examples that will help you make quick work of calculating a percent of a total in Excel on different data sets. $10 million (approx. estimate), and the estimation of the total revenue is around 200 million.

Income Recognition

The same sequence of steps shall be performed when using any other percentage formula in Excel. The term “per cent” is derived from the Latin per centum, meaning “by the hundred”. As you probably remember from high school math class, a percentage is a fraction of 100 that is calculated by dividing the numerator by the denominator and multiplying the result by 100. All these variations use different metrics to calculate the revenue for the period, but the underlying logic is still the same. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.

It’s a quick and easy way to determine if you’re on target or falling behind, which is essential for delivering a successful project. The ability to create dependable contract estimates may be impaired when there are conditions present that are not normally encountered in the estimating https://www.bookstime.com/ process. Examples of these conditions are when a contract does not appear to be enforceable, there is litigation, or when related properties may be condemned or expropriated. Cost of goods sold (COGS) makes up a substantial portion of a construction company’s expenses.

Example of Percentage of Completion Method

Revenue, expenses, and gross profit are recognized each period based on the percentage of work completed or costs incurred. The percentage of completion method is an accounting method in which the revenues and expenses of long-term contracts are recognized as a percentage of the work completed percentage of completion formula during the period. This is in contrast to the completed contract method, which defers the reporting of income and expenses until a project is completed. The percentage-of-completion method of accounting is common for the construction industry, but companies in other sectors also use the method.

• This is in contrast to the completed contract method, which defers the reporting of income and expenses until a project is completed.
• (b) the gross amount due to customers for contract work as a liability.
• Then multiply the percentage calculated by the total project revenue to compute revenue for the period.
• In this tutorial, you will lean a quick way to calculate percentages in Excel, find the basic percentage formula and a few more formulas for calculating percentage increase, percent of total and more.
• With this in mind, accounting would be much easier for contractors who simply report income after the project is complete.

In the above example, suppose you have several rows for the same product and you want to know what part of the total is made by all orders of that particular product. Regrettably, there is no universal Excel formula for percentage that would cover all possible scenarios. If you ask someone “Which percent formula do I use to get the result I want?”, most likely, you will get an answer like “Well, that depends on what exactly result you want to achieve.” Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. Browse templates and checklists that we have created after talking to thousands of general contractors like you. Eliminate double data entry with integrations to Viewpoint Vista, Sage 300, CMiC, Procore, and more.