PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING Definition

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PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING is instituted if your revenues exceed $10,000,000 (3-year average) or your contracts will not be completed within a two-year period, you are generally required to use the percentage of completion accounting for contracts. There are many advantages to using to percentage of completion method including: a. It is the best measurement of income; b. Percentage of completion normally needs to be computed for financial statement purposes eliminating confusing timing differences from tax to financial statements; c. There is no increase in alternative minimum taxable income; d. Losses can be recognized on contracts before the job is complete; e. It is useful in leveling taxable income, permitting use of lower tax brackets each year. When using the percentage of completion method, it is important to carefully compute the percent complete, for it may have a great impact on your taxable income. Estimated costs to complete the contract, a component of calculating the percent to complete, determine what your taxable income will be. Also, carefully reviewing the over-head allocation may result in lower tax.

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BUDGET is an itemized listing of the amount of all estimated revenue which a given business anticipates receiving, along with a listing of the amount of all estimated costs and expenses that will be incurred in obtaining the above mentioned income during a given period of time. A budget is typically for one business cycle, such as a year, or for several cycles (such as a five year capital budget). Of the many kinds of budgets, a CASH BUDGET shows CASH FLOW, an EXPENSE BUDGET lists expected payments of money, and a CAPITAL BUDGET shows the anticipated payments for CAPITAL ASSETS. See FORECAST, PROJECTION.

INCUR is acquiring or getting into something undesirable or making oneself subject to; bring upon oneself; become liable to, e.g. to incur a cost or debt.

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