Accounting for long-term contracts using the completion method

A company can choose to manage its long-term contracts in two different ways in accounting. Compta-Facile chose to detail, in this article, one of them called the method at completion. The objective is to provide an answer to the question: how to account for a long-term contract using the method at completion?

Long-term contracts accounting method completion

The management of long-term contracts is in practice only necessary in the accounts of some sectors of activity: the accounting of a building company, computer engineering, space industry or aeronautics. These contracts are characterized by a fairly long term (at least 2 different accounting years). They concern complex and generally unique projects. They have been fully presented in the publication opposite:  definition and management of long-term contracts.

In accounting, long-term contracts benefit from two separate treatments. The first is called the "progress method" (it has been discussed separately:  accounting treatment of the method on the progress of long-term contracts). The second is the method at completion (this is the treatment that is presented here).

It should first be pointed out that the method at completion is the one recommended by the texts . It is authorized but, from an accounting point of view, it is not the one which leads to the presentation of the most accurate picture of the annual accounts (it is ensured in case of recourse to the promotion).

Then, in both cases, it is necessary to calculate the forecast margin that a company expects to generate on its long-term contracts. This calculation is carried out on a contract-by-contract basis as soon as they are concluded.