Completed Contract Method or CCM is one of the accounting methods used in the construction industry to recognize revenue and expenses after the work completes. This is a method to simplify the accounting process of construction projects.
For most contractors in The Philippines, they usually used this method for short-term or uncertain projects where estimating costs can be difficult. This article will help you to optimize the usage of Completed Contract Method.
Key Takeaways
The Completed Contract Method (CCM) is an accounting method to record revenue and profit after a project is done. This method focuses on calculating the expenses after the work is done, even if the client has already paid part of the money.
Usually, contractors use this method for short-term or projects with uncertainties such as fluctuating costs, delays, changing scopes. Using CCM can avoid recognizing revenue too early before the final costs of the project are clear.
Compared to other accounting methods, CCM provides a simpler way to recognize income because financial results are reported once the project is finished. However, businesses still need proper documentation to support project reporting.
The construction billing process may be difficult to understand because it requires a lot of compliance and tax regulations. However, several projects may use CCM to simplify the process. Here some Complete Contract Method process usually includes:
The methods above are often associated with proper project tracking and accurate construction accounting practices to ensure all project costs are documented correctly before final reporting.
When trying to use CCM, project managers should be careful because it is not suitable for every project. This method is typically used under specific situations where the outcomes are difficult to estimate. Here some common situations of applying CCM:
In addition, contractors also combine proper project monitoring systems and construction accounting software to improve cost tracking and financial accuracy during project execution.
Like other accounting methods, the Completed Contract Method offers several advantages and disadvantages for construction businesses. Here are some pros and contras of applying CCM method in financial flows.
Completed Contract Method is one of the payment methods that offers several advantages for managing cash flow and project expenses effectively. Here are some advantages of applying this method in construction projects:
Although the Completed Contract Method offers several advantages, there are also some downsides to applying this method in construction projects. Here are some disadvantages of CCM:
Because of these challenges, contractors often need better project cash flow management, especially when handling billing in construction processes and project payment schedules.
The Completed Contract Method and Percentage of Completion Method are two common accounting approaches used in construction projects. However, both methods differ in how they recognize revenue and expenses. Here are the differences:
| Aspect | Completed Contract Method | Percentage of Completion Method |
|---|---|---|
| Revenue Recognition | After project completion | Gradually during project progress |
| Financial Reporting | Simpler | More detailed and continuous |
| Profit Visibility | Delayed until project completion | Recognized progressively |
| Suitable for | Short-term or uncertain projects | Long-term predictable projects |
Many contractors often ask, “Is Completed Contract Method GAAP compliant?” The answer is yes, but only under certain conditions. Under Generally Accepted Accounting Principles (GAAP), CCM can still be used when project estimation cannot be measured.
However, accounting standards generally prefer methods that recognize revenue progressively during working time. It is because contractors can maintain financial flows regularly and spend expenses on other important costs.
In the Philippines, contractors should comply with local accounting regulations which is Philippine Financial Reporting Standards (PFRS). It follows international principles, thus companies are encouraged to use methods that accurately reflect progress.
Not only standard principle, companies also must consider tax reporting requirements from the Bureau of Internal Revenue (BIR). Choosing the right accounting method helps businesses maintain accurate financial statements and improve compliance.
Also, not only compliance, companies who are handling project retention payments or retainage should maintain accurate records to avoid reporting discrepancies at project completion.
To better understand the Completed Contract Method in actual accounting practices, Here is the example of how this financial method to applied to a short-term project in the Philippines:
Suppose a construction company receives a contract worth ₱12,000,000 to build a two-story office building. Under the CCM, the company records construction costs during the project but recognizes revenue after the project is completed.
CCM Example Journal Entry
The Completed Contract Method or also known as CCM is an accounting approach that recognizes project revenue after the project is completed. Generally, this method is used for short-term or uncertain projects to reduce estimation risks.
However, businesses should also consider its limitations, including delayed profit and uneven financial statements. Choosing the right accounting method depends on project complexity and compliance requirements in the Philippines.
To improve accounting accuracy, and financial visibility, construction companies can use ScaleOcean Construction Accounting ERP Software. The system helps contractors manage project costs, invoicing, and operational workflows efficiently in one system.
If you want to simplify construction accounting, you can also request a free demo to explore how the system supports your construction business operations.
CCM records all project revenue and costs only after the contract is fully completed, not during the project timeline.
POC recognizes revenue gradually as work progresses, while CCM records revenue only after the project is completed.
Yes, CCM is allowed under US GAAP, but ASC 606 limits its use to certain contract situations.
