Which method recognizes income as it is earned during a construction project?

The percentage of completion method is the correct choice because it allows contractors to recognize income based on the progress of the work during a construction project. This method aligns with the matching principle in accounting, which states that expenses should be matched with the revenue they help to generate. As construction progresses, the contractor estimates the percentage of the contract that has been completed and recognizes the corresponding revenue at that stage. This provides a more accurate reflection of a contractor's financial performance over time compared to other methods.

In contrast, the completed contract method only recognizes income and expenses once the project is finished, which can cause significant fluctuations in reported income depending on the project's timing and completion. Cash basis accounting recognizes income only when cash is received, which does not accurately reflect work performed and can misstate profits in ongoing projects. Accrual basis accounting recognizes income when earned and expenses when incurred, but does not specifically take into account the progress of construction projects in the same way the percentage of completion method does.