Completed Contract Method

Accounting method whereby revenues and expenses (and therefore taxes) on long-term contracts, such as government defense contracts, are recognized in the year the contract is concluded, except that losses are recognized in the year they are forecast. This method differs from the percentage-of-completion method, where sales and costs are recognized each year based on the value of the work performed. Under the Tax Reform Act of 1986, manufacturers with long-term contracts must elect either the latter method or the percentage-of-completion capitalized cost method, requiring that 40% of the contract be included under the percentage-of-completion method and 60% under the taxpayer's normal accounting method.

An accounting method under which net profit on an entire long-term contract is reported in the year when the contract is completed. Expenses connected with the job are not deducted until the contract is completed. This method may be used for tax purposes only for home construction contracts and certain other small construction contracts. See also Percentage-Of-Completion Method.