Under percentage-of-completion accounting, revenue and profit on a long-term contract are recognized as the work progresses rather than at the end. The cost-to-cost method is the most common measure, so a job with 40 percent of its estimated costs incurred recognizes 40 percent of its expected revenue.
Current revenue recognition standards describe this as recognizing revenue over time when performance obligations are satisfied over time. The method makes estimates of total cost critical. An optimistic estimate overstates profit until the job nears completion.