Percentage of completion (PoC) is an accounting method of work-in-progress evaluation, for recording long-term contracts.
The accounting for long term contracts using the percentage of completion method is an exception to the basic realization principle.
Revenues and gross profit are recognized each period based on the construction progress, in other words, the percentage of completion.
So according to the percentage-of-completion method: Cost percentage = 3000/10000 = 30%; so we will recognize 30% revenue in the income statement for the first year.
For the third year, our cost to date reaches 10,500, so according to PoC: Percentage completion = 10,500/15,000 = 70% Revenue = 70% of 12,000 – previously recognized = 8,400 – 6,000 = 2,400.
The gross amount due from/to customers for contract work is the net amount of: (a) costs incurred plus recognized profits; less (b) the sum of recognized losses and progress billings for all contracts in progress.