Cash basis vs.
percentage-of-completion.

The short answer

Cash basis records revenue when money arrives and costs when money leaves. Percentage-of-completion (POC) records revenue as you earn it — based on how much of each job is actually done — regardless of when the checks move.

For a landscaper invoicing weekly, the difference barely matters. For a contractor running jobs that span months, with progress billings, retainage, and deposits, the difference is everything: on cash basis, your P&L measures billing timing, not performance.

Why cash basis lies to contractors

Same contractor, same two months, real-world timing:

Neither month's "profit" means anything. Stack twelve of these and your annual P&L is noise.

The damage isn't cosmetic. Decisions get made on those numbers: a fat March tempts you into new trucks and raises; a scary April makes you pass on good work. And when a lender asks whether the business is profitable, you genuinely don't know.

What POC does instead

Percentage-of-completion asks, job by job: how far along are you? The standard measure is cost-to-cost — costs incurred so far divided by estimated total costs. A job that's consumed 60% of its expected cost is 60% complete, and you've earned 60% of the contract value. The gap between what you've earned and what you've billed lands on the balance sheet — as an asset if you're under-billed, a liability if you're over-billed.

Under POC, that March mobilization draw isn't profit — it's mostly a liability (billings in excess of costs), because the work hasn't been done yet. April's unbilled work isn't a loss — it's earned revenue sitting in an asset account waiting for the pay app. Each month's P&L now reflects work performed and margin earned. That's the number you can run a business on.

When you'll be forced to switch (better: switch first)

• Bonding. Sureties underwrite from POC-basis financial statements — for meaningful programs, they generally won't accept cash-basis numbers. If bonded work is in your future, so is POC.
• Bank credit. As lines of credit grow, lenders start requiring accrual/POC statements and periodic WIP schedules with covenants attached.
• Scale. Somewhere around $3–5M of revenue — earlier for contractors with long jobs or heavy progress billing — cash-basis distortion gets bigger than the profit you're trying to measure. Most contractors feel the books "going random" before anyone can name why.
• Selling or bringing in partners. Any serious buyer or investor will restate your numbers to POC anyway. Better to already know what they'll find.

The contractors who switch on their own timeline get a bonus: two or three years of clean POC history by the time a surety or lender asks for it — which is exactly what bonding agents want to see.

One important distinction: book method vs. tax method

How you run your books and how you file your taxes don't have to match. Many contractors keep POC books for management, banking, and bonding while using a different method for tax — small contractors often qualify for cash or completed-contract treatment on their returns, which can defer tax. That's a decision to make with your CPA; we don't do tax work. Our lane is making sure the books themselves tell the truth — your tax preparer will be glad they do.

What it takes to run POC well

1. Job costing that's actually complete — every cost coded to a job, every month.
2. Honest cost-at-completion estimates — updated when change orders land and when jobs drift. Stale estimates are how profit fade hides.
3. A disciplined monthly close — POC entries (revenue recognition, over/under-billing adjustments) posted every month, not once a year when someone asks.