Which accounting method recognizes revenue based on the work completed on a project?

The percentage of completion method is the correct approach for recognizing revenue based on the work completed on a project. This method is particularly relevant for long-term contracts, such as construction projects, where revenue can be recognized gradually as specific milestones are reached or a percentage of completed work is achieved.

Using this method allows a company to match revenue with the expenses incurred on the project over time, providing a more accurate picture of financial performance throughout the life of the project. It aligns revenue recognition with the work that has been completed, rather than waiting until the entire project is finished, which can delay financial recognition and reporting.

In contrast, the completed contract method, although applicable for certain situations, only recognizes revenue and expenses when the contract is fully completed. The cash basis method recognizes revenues and expenses only when cash changes hands, which does not accurately reflect revenue earned based on work completed. The accrual basis recognizes revenues and expenses when they are incurred, but does not specifically relate to measuring progress in long-term contracts. Thus, the percentage of completion method provides the most relevant framework for recognizing revenue throughout the duration of a project based on its completion status.