Under the percentage-of-completion method,the profit to be recognized in any year is based on the ratio of incurred contract costs divided by estimated total contract costs.

Percentage-Of-Completion Method

An accounting method used to recognize revenues and expenses of long-term projects proportionate to the work completed during the period.

Contract Costs

Expenses directly related to securing and executing a contract, including labor, materials, and overheads.

Estimated Total

A projected computation or guess of the final amount or value.