A long-term contract using revenue recognition based on progress should recognize revenue in proportion to progress. Which statement is true?

A long-term contract using revenue recognition based on progress should recognize revenue in proportion to progress. Which statement is true?

• A. Revenue is recognized only upon project completion
• B. Revenue is recognized when cash is collected
• C. Revenue is recognized in proportion to the percentage of work completed
• D. Revenue is recognized at contract signing

Answer: (C)

Long-term contracts that recognize revenue based on progress use the percentage-of-completion approach, so revenue is recorded as work progresses. As the project moves forward, you estimate how much of the total work is done and recognize that same proportion of revenue (often using costs incurred to date relative to total estimated costs as the progress measure). This aligns revenue with the performance you’ve completed and the costs incurred, giving a more accurate picture of profitability over time. The statement that matches this idea is that revenue is recognized in proportion to the percentage of work completed. The other options reflect methods that don’t align with progress-based recognition: waiting to recognize revenue until project completion (completed-contract), recognizing revenue only when cash is collected (cash basis), or recognizing revenue at contract signing (before any performance).

Long-term contracts that recognize revenue based on progress use the percentage-of-completion approach, so revenue is recorded as work progresses. As the project moves forward, you estimate how much of the total work is done and recognize that same proportion of revenue (often using costs incurred to date relative to total estimated costs as the progress measure). This aligns revenue with the performance you’ve completed and the costs incurred, giving a more accurate picture of profitability over time.

The statement that matches this idea is that revenue is recognized in proportion to the percentage of work completed. The other options reflect methods that don’t align with progress-based recognition: waiting to recognize revenue until project completion (completed-contract), recognizing revenue only when cash is collected (cash basis), or recognizing revenue at contract signing (before any performance).