How to Recognize Construction Revenue via Percentage of Completion (POC)
Recognizing revenue based on the percentage of the project physically completed at month-end.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Contract Revenue (P&L) | Revenue (+) | - | 180,000.00 |
| Work-in-Progress (WIP) | Asset (+) | 180,000.00 | - |
💡 Accountant's Note
Under IFRS 15, revenue on long-term contracts is recognized over time as performance obligations are satisfied. The percentage is calculated as (costs incurred to date / total estimated costs) × contract price.
Practitioner & Systems Framework
💻 ERP Architecture
Use the ERP's Revenue Recognition module. Input the Estimate at Completion (EAC). The system calculates POC = Actual Cost / EAC. It then calculates Earned Revenue = POC × Total Contract Value, and generates the journal entry automatically.
⚠️ Audit Flags
EAC manipulation. Auditors will test the robustness of the EAC. If management delays updating EAC costs, POC is artificially inflated, bringing forward revenue and profit improperly. The cost-to-cost method must exclude inefficiencies (wastage) from the POC calculation.
📄 Required Documentation
Month-end EAC report, POC calculation spreadsheet, project manager sign-off on costs to complete, and total contract value documentation (including approved VOs).
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.