If two firms are identical except that one firm uses percentage-of-completion accounting and the other uses completed contract accounting for revenue recognition, the cash flows of the firms will be identical.

Question

Quizplus · Accepted Answer

The difference between percentage-of-completion accounting and completed contract accounting affects the timing of revenue and profit recognition on the income statement, but it does not affect the actual cash flows generated by the projects. Cash flows are determined by the actual receipt and payment of cash, not by the accounting method used.

If Two Firms Are Identical Except That One Firm Uses