Oregon Construction Contractors (CCB) Practice Test

Under the completed contract method, what costs are deferred until project completion?

1. Only revenue

2. All costs, profits, and revenue

3. Only profits

4. Only losses

The correct answer is: All costs, profits, and revenue

Under the completed contract method, the recognition of revenue and expenses is deferred until the project is fully completed. This accounting method is primarily used in construction contracts where revenue and expenses are recognized only when the entire project is finished, ensuring that the financial statements reflect the true financial outcome of the project. In this approach, all costs related to the contract, which include materials, labor, overhead, and any other project-related expenses, are accumulated over the life of the project but not reported in the income statement until completion. Similarly, this method also defers recognition of any profits or losses resulting from the project until it has been completed. This comprehensive deferral means that no income or expense will appear on the books until the project reaches its final stage, allowing for a clearer presentation of how the entire project has performed financially. The other options are limited to specific aspects. For example, deferring only revenue would not accurately reflect the overall financial state of the project, nor would it give a complete picture of the costs incurred. Focusing solely on profits or losses also misses the broader context of recognizing all project costs. Thus, the completed contract method uniquely treats all associated costs, profits, and revenue as deferred until project completion.