Question

What long-term contract method generally results in the greatest deferral of income?

Answer 1

Completed Contract method for contractor:

The completed-contract method (CCM) is easier to account for than the percentage-of-completion method (PCM). Using the CCM, a contracting company doesn’t recognize either revenue or expense transactions relating to the contract until the contract is completely finished. Companies that use the CCM must have some sort of accounts to hold these transactions until recognition.

The CCM generally results in the greatest tax deferral, compared to other long-term contract accounting methods, because the general rule is that all contract income and contract-related expenses (both direct and indirect) are deferred until the taxable year in which the contract is completed.