A one-week job is easy: you do the work, you invoice, you book the revenue. A nine-month job that starts in October and finishes in June is the hard part of construction accounting — because your fiscal year-end lands in the middle of it. Show nothing until it’s done and your statements lurch from empty to huge; show it wrong and your banker, bonding company and the CRA all see numbers they can’t trust.
The two methods under ASPE
Canadian private companies follow ASPE (the accounting standards for private enterprises), and Section 3400, Revenue, gives two ways to handle a long-term contract:
- Percentage-of-completion. Used when the outcome of the contract can be reliably estimated. You recognize revenue and profit gradually, in step with how far along the job is.
- Completed-contract. Used when the outcome cannot be reliably estimated. You hold the revenue and costs until the job is substantially done, then recognize them.
The reliably-estimable test is what decides it — not preference. Most established contractors with solid estimates use percentage-of-completion.
How percentage-of-completion is measured
The common measure is cost-to-cost: your stage of completion equals costs incurred to date ÷ total estimated costs. If you’ve spent $300,000 of an estimated $1,000,000, you’re 30% complete, and you recognize 30% of the contract’s revenue (and the related profit) this period. As the estimate of total cost changes, the percentage — and the revenue — adjust.
Where it shows up on your books
Because billings rarely match progress exactly, percentage-of-completion creates two familiar balance-sheet items:
- Costs and estimated earnings in excess of billings (underbillings) — you’ve earned more than you’ve invoiced.
- Billings in excess of costs and estimated earnings (overbillings) — you’ve invoiced ahead of the work.
Those two lines are how a lender reads whether you’re financing the owner’s job or they’re financing you.
Losses are booked immediately
One rule overrides the gradual recognition: if a contract is expected to lose money overall, you recognize the entire expected loss right away, not spread over the job. A job that turns underwater at month three hits your statements at month three.
This is only as good as your job costing
Every number above depends on a reliable estimate of total cost — which you only have if you track cost by project in real time. That’s the link between this and job costing: without it, your percentage-complete is a guess and your revenue is wrong. It also interacts with holdbacks on the billing side. We set construction books up so progress, billings and holdbacks reconcile — see contractor bookkeeping or talk to us. The choice of method is an accounting-policy decision to settle with your accountant; this is general information, not advice for your business.
Frequently asked questions
When can a contractor use the percentage-of-completion method?
Under ASPE Section 3400, when the outcome of the contract can be reliably estimated. If it can’t, the completed-contract method is used until the job is substantially complete.
How is percent complete calculated?
Most commonly by the cost-to-cost method: costs incurred to date divided by total estimated costs. That percentage is applied to the contract’s total revenue for the period.
What happens if a job is going to lose money?
The entire expected loss on the contract is recognized immediately, not spread over the remaining work.
Sources
- CPA Canada Handbook – ASPE Section 3400, Revenue
- CPA British Columbia – Recognizing revenue under ASPE (long-term contracts)
- Grant Thornton Canada – Advisor Alert, amendments to ASPE Section 3400 Revenue