In the percentage of completion method, what does income recognition depend on?

The percentage of completion method is a way of recognizing revenue in long-term contracts, particularly in construction, where income is recognized based on the progress of the project. Specifically, this method ties revenue recognition to the completion of the physical work on the project, meaning that as certain portions of the work are completed, a corresponding percentage of the total revenue can be recognized.

This approach allows contractors to match revenue with the costs incurred over the life of the project, providing a more accurate reflection of financial performance as the project progresses. As physical work is completed, costs are incurred, and revenue can be recognized in alignment with that progress, which is essential for both financial reporting and project management.

In contrast, the other options describe factors that do not directly pertain to the revenue recognition process under this method. While accumulated contractor payments may indicate cash flow, they do not determine when revenue can be recognized. The completion of project phases or earned revenue based on project appraisal might capture the project's status but do not specifically focus on the percentage of physical completion, which is the key factor in this method.