Answer
In long-term agreements or contracts, the utilization of the "sales basis" would result in a twisting of the occasional income totals. A variation to a "percentage of completion basis" is justified if objective proof of the amount of income earned in the periods preceding completion is accessible.
Work Step by Step
The accountant finds such proof in the presence of a firm contract, from which the ultimate realization can be determined, and estimates of the total cost, which can be contrasted with the expense brought about to estimate the percentage of completion for income estimation purposes. In general, when estimates of expenses to finish and degree of advancement toward fulfillment of long-term contracts are reasonably dependable, the percentage-of-completion strategy is preferable to the completed-contract technique.
