The theoretical support for using the percentage-of-completion method of accounting for long-term construction projects is that it
A) is more conservative than the completed-contract method.
B) produces a realistic matching of expenses with revenues.
C) more closely conforms to the cost principle.
D) reports a lower Net Income figure than the completed-contract method.

Question

Quizplus · Accepted Answer

The percentage-of-completion method of accounting provides a realistic matching of expenses with revenues by recognizing revenues and expenses as work is completed, instead of waiting until the entire project is completed. This method more accurately reflects the progress of the project and the corresponding costs and revenues, which is important for financial reporting purposes. Additionally, the percentage-of-completion method conforms to the matching principle, which requires that expenses be recognized in the same period as the related revenues they generate.

The Theoretical Support for Using the Percentage-Of-Completion Method of Accounting