Florida General Contractor Practice Exam

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Which method should builders with fluctuating monthly volumes utilize?

Cash basis method
Percentage of completion method
Completed contract method
Installment method

The correct answer is: Percentage of completion method

Builders with fluctuating monthly volumes should utilize the percentage of completion method because it allows for the recognition of revenue and expenses in a manner that reflects the progression of work on a construction project. This method enables builders to match income with the costs incurred over the duration of a project, which is especially beneficial when project timelines and cash flows can vary significantly from month to month. By using the percentage of completion method, builders can report income based on the proportion of work completed at the end of each accounting period. This approach provides a more accurate representation of financial performance and project status, reducing the likelihood of significant swings in monthly revenue that can occur with other accounting methods. Additionally, this method can help in managing cash flow as it allows contractors to recognize earnings on contracts as work progresses, rather than waiting until the entire project is finished. This method is particularly effective in the construction industry, where projects are often long-term and may not have straightforward billing cycles or cash inflows due to fluctuating project phases.