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Percent Complete Method
What is the percentage-of-completion method?
The percentage-of-completion method is an accounting method used in the construction industry to recognize revenue and expenses for long-term projects as they progress—rather than waiting until the project is completed. Under the POC method, a contractor or subcontractor estimates the total contract revenue, total contract costs, and the percentage of work completed during a specific accounting period.
Revenue is recognized based on the percentage of work completed multiplied by the total estimated contract revenue. Expenses are recognized based on the percentage of work completed multiplied by the total estimated contract costs. This method aims to provide a more accurate representation of a construction project's financial performance over its duration rather than recognizing all revenue and expenses at the end.
For subcontractors and their accounting teams, understanding the POC method is crucial for three reasons:
- It directly impacts their revenue recognition and financial reporting, enabling them to assess profitability throughout project lifecycles.
- It affects their cash flow projections and management, as progress payments are typically tied to the POC.
- Understanding this method ensures compliance with accounting standards and regulations, minimizing the risk of audits or penalties.
Siteline supports the POC method, ensuring accurate financial reporting and cash flow management. With Siteline, you can:
- Generate custom pay applications using real-time POC calculations
- Integrate with general contractor (GC) payment portals to ensure timely and accurate submissions
- Gain real-time insights into project financials with intuitive dashboards
- Centralize all documentation for improved field-to-office collaboration
Book a demo today to discover how Siteline can enhance your accounting processes, strengthen your cash flow, and ultimately contribute to your company's financial success.
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Other construction terms
What is a Lien Waiver?
A lien waiver is a legal document used in the construction industry that is often exchanged between parties involved in a construction project. This waiver essentially absolves or "waives" the claimant's (typically a project participant like a contractor, subcontractor, or supplier) right to impose a lien on the property for the amount they have been paid. It's often used upon payment to ensure that the payer is protected from double payment or any encumbrances on the property related to payment disputes. There are four general types of lien waivers: conditional and unconditional, each of which can be used for progress or final payment. Each type has its own legal implications, so it's important to understand them fully before signing.
What is an Allowance?
In construction, an allowance is a predetermined dollar amount included in a contract to cover materials, fixtures, or finishes that haven’t yet been selected. Allowances are typically used for flooring, lighting fixtures, plumbing fixtures, appliances, or other finish materials (things that contribute to the project’s aesthetic) where the owner may want flexibility to make selections as the project evolves.
Here’s how allowances work: When contractors bid on a project, they’ll include specific allowance amounts (e.g., $5,000 flooring allowance). Once construction begins and the owner chooses actual materials, the costs are reconciled against the allowance. If the materials cost less, they receive a credit. If more, the owner pays the difference via a change order.
Siteline can help you track and manage those change orders, ensuring you get paid for that difference. Learn more about how Siteline streamlines change order management here.
What is a Release?
In the construction industry, a release is a legal instrument that acts to terminate any legal liability between the releasor and the releasee, signed by the releasor. It is often used to settle disputes or claims, with one party agreeing to release the other from any existing obligations, responsibility or further legal action in return for a negotiated compensation. It may also refer to a point in a construction project where work is considered complete to a given level, allowing for payment or the transfer of responsibility to the next party involved in the process.
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