Understanding the Completed Contracts Method: Is 98% Completion Enough?

Understanding when a contract is truly finished isn’t just a box to check on a form—it shapes how you show money in your books, affects taxes, and even how lenders view your projects. For Florida contractors, the completed contracts method is a classic tool in the accounting toolkit. It’s simple in concept, but it’s easy to trip over the details if you’re not careful. Let’s break it down in plain terms, and I’ll connect the dots to real-world practice you’ll recognize on the job.

What the completed contracts method really means

Think of a long, multi-month construction project. Under the completed contracts method, you don’t recognize revenue or the associated costs as the work progresses. You wait until the entire project is finished and every contract obligation is fulfilled. Only then do you pull the entire amount onto your income statement and balance sheet.

That sounds conservative, and it is. Revenue recognition is delayed on purpose to avoid overstating how much you’ve earned while there’s still work to be done or potential changes to the scope. It also means your financial statements stay clean and straightforward: one big recognition at the end, when everything is done, inspected, and accepted.

The 100% threshold—and the 98% confusion

Here’s the core point you’ll want to remember: under the completed contracts method, completion is typically considered at 100%. That’s when all work is finished, all contractual obligations are met, and the project has reached its final accepted state. When you’re facing a quiz or a scenario that cites 98%, it’s usually a distractor—meant to test whether you know the fundamental rule rather than spot a halfway milestone.

So why do some questions spin 98% into the mix? Sometimes, exam writers want to probe a reader’s understanding of how close a project must be before you can move to the next phase of accounting. The practical takeaway, though, is simple: 100% completion is the point at which revenue and expenses get recognized in the completed contracts approach. If you catch yourself thinking, “98% means we’re done,” you’re revisiting the basics: the project must be finished and all contracts fulfilled.

A quick contrast: what happens before 100%?

To keep the idea clean, let’s contrast it with the alternative method that many projects use more regularly—percentage-of-completion. Under that method, you recognize revenue and costs as the project progresses, based on the degree of completion. This approach gives a more ongoing view of profitability during a long-build, which can be helpful for project management and financing.

The completed contracts method is the opposite: you avoid recognizing income until the finish line. Why? Because long-term projects can carry a lot of uncertainty—change orders, unknowns in subcontractor performance, or outright delays. By postponing recognition, you keep the books honest and avoid inflating current-period income.

A down-to-earth example

Picture a 12-month commercial build in Florida, say a new office building. The contractor anchors the contract in a fixed price with a long timeline. If the project uses the completed contracts method, all the costs—materials, labor, overhead, subcontractors—aren’t tallied as they’re incurred. They’re held in a “work in progress” bucket and only move to revenue and final cost of goods sold when the project is complete and accepted by the owner.

Until that moment, you might see a lot of sketches, receipts, change orders, and a cash flow that looks bumpy. That’s not a mistake; it’s the point. The method emphasizes caution and clarity. Once the owner signs off on completion, you recognize the total revenue and the total costs in one decisive step. The financial statements then reflect the project’s final status, not a midstream snapshot.

Why Florida firms might choose this path

In the Sunshine State, construction often involves big, complex, multi-year projects—from high-rise apartments to hospital expansions. The completed contracts method can appeal in scenarios where:

• The outcome is highly uncertain at the outset and changes are common.

• The project is technically nearing completion only after several final inspections and acceptances.

• There’s a desire to present a cautious, conservative view of earnings to lenders or investors.

That said, many Florida contractors lean toward percentage-of-completion for ongoing visibility into profitability and cash flow. The choice isn’t about one method being universally better; it’s about which approach aligns with the contract terms, the likelihood of scope changes, and how you want your financial story told at year-end.

Practical tips to stay straight on the books

If you’re working with the completed contracts method, here are some practical habits that help keep reporting clean and reliable:

• Maintain a dedicated job-cost ledger. Separate each project’s costs clearly so you can pull the total at completion without chasing down items from different jobs.

• Document completion status. Keep a clear, auditable trail showing when all work is finished and the owner has accepted the project. That’s the trigger you’ll rely on.

• Track change orders carefully. Even a finished project can have late-change adjustments; decide upfront how these will be treated under the completed-contract framework.

• Use reliable project closeout procedures. A formal closeout checklist helps avoid “almost done” status slipping into the books as if it were finished.

• Keep software aligned with your method. Modern accounting tools—QuickBooks, Xero, Sage, and other job-costing platforms—can be configured to hold revenue and costs until completion, then release them in a single entry. It’s worth investing a little setup time so the numbers don’t surprise you at year-end.

Common pitfalls to avoid

• Premature revenue recognition. It’s tempting to treat partial milestones as “almost there,” but the completed contracts method asks for the full finish. Don’t stretch the threshold to cover partial progress.

• Inconsistent completion criteria. If some projects are deemed complete for revenue and others aren’t due to different contract terms, you’ll confuse your numbers. Keep criteria consistent and well-documented across jobs.

• Neglecting disclosures. If your financial statements use the completed contracts approach, make sure notes explain why and when revenue was recognized. Transparent notes reassure lenders and stakeholders.

What this means for your Florida accounting toolkit

The completed contracts method is part of the broader family of long-term-contract accounting options. It’s not a one-size-fits-all solution, but it remains a reliable approach when you want a conservative, straightforward picture of project performance. For Florida contractors, the method often sits alongside other tools—like robust job-costing, clear acceptance procedures, and careful contract administration—to help you tell an accurate financial story.

If you’re curious about how this fits with local business practices or tax considerations, a quick chat with a qualified accountant who understands Florida’s construction landscape can pay off. They can help you map out when this method makes sense given your project mix and client expectations, and they can help ensure your financial statements stay compliant and credible.

Bringing it all together: the bottom line

• The completed contracts method recognizes revenue and related costs at project completion, not as work progresses.

• The threshold is 100% completion, meaning all work is done and all contractual obligations are fulfilled.

• The notion of 98% completion as the finish point is a common misconception in some questions and discussions; the correct accounting rule centers on 100% completion.

• Florida contractors use this method to keep financial reporting conservative and clear, especially on large, uncertain, or long-running jobs.

• Real-world readiness comes from solid job costing, disciplined closeout procedures, and thoughtful use of accounting software.

If you want to keep your books honest and your numbers trustworthy, the completed contracts method is a dependable companion for the right kinds of projects. It’s not flashy, but it’s practical—and in the end, clarity is what counts most. Should you decide to explore how this approach fits your specific projects, a seasoned Florida-based accounting advisor can help tailor the setup, so your financials reflect reality as plainly as possible.