It is a method of revenue recognition that is used by the accountants to find out the percentage of completion of project, revenue associated with project and the cost associated with the percentage of completed project. The cost to cost method can be termed as the subset of percentage of completion method. In order to recognize revenue and to find out the cost associated with the percentage of project that has been completed the total of all the costs of project that are recorded to the date are divided by the estimated total cost required to complete the project. This will generate a percentage of project completion that can be used to recognize revenue and for the billing of the underlying project.
In order to make it an effective method of revenue recognition it is important that accountants must regularly review and revise the cost associated with the completion of project and compares the cost of each step with total estimated cost of overall project. If accountants are unable to calculate most up to date cost information this method will not generate hundred percent accurate results
The cost to cost method is favorable for those firms and business that want to find out the expected revenue related to a project at some early stage of the project. Moreover it is also a favorable method to compare the total estimated cost of the project at each individual milestone of project.
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