Oops! Something went wrong while submitting the form.
Get a Demo
See your data in HubiFi < 2 days
Understand the cost to cost accounting method with this complete guide, covering its benefits, challenges, and practical tips for accurate financial reporting.
Taking control of your project financials means more than just tracking expenses; it means understanding profitability and progress every step of the way. If you're managing contracts that span several months or years, the cost to cost method of revenue recognition can be a powerful tool in your financial toolkit. This approach allows you to recognize revenue incrementally, based on the costs you've already put into the project relative to the total expected costs, providing a more dynamic view of your financial performance. We're going to explore what the cost to cost method is all about, how to apply it, the significant advantages it offers for real-time financial insight and better decision-making, and also discuss the potential challenges and best practices for successful implementation in your business.
If your business handles long-term projects, you've probably thought about the best way to account for the money coming in and going out. The cost-to-cost method is a well-regarded approach within percentage completion accounting. It gives you a systematic way to recognize revenue and expenses as your project moves forward, instead of waiting until the very end. Let's explore what this method involves and see if it’s a good match for your company.
At its core, the cost-to-cost method is pretty intuitive: the revenue you record for a project directly reflects the costs you've paid out so far. Imagine it like this: if you've spent 25% of the total estimated costs for a project, you then recognize 25% of the total project revenue. This method is really valuable for ensuring your financial reporting stays accurate, especially when projects stretch over several accounting periods.
Picking the right way to recognize revenue is crucial for clear and trustworthy financial statements. The cost-to-cost method helps by aligning the revenue you report with your actual project spending. This means your financial reports offer a more synchronized and realistic picture of how your company is performing on its long-term contracts. It’s all about showing progress accurately as it happens, which can make a big difference in understanding your financial health.
So, which businesses find the cost-to-cost method most useful? It’s frequently used in industries known for long-duration contracts. Think about sectors like construction, aerospace, and large-scale defense projects. For these kinds of companies, the method offers a more accurate measurement of progress than if they waited until a project was entirely finished. This can also lead to recognizing revenue sooner, which can be beneficial for understanding cash flow and project profitability along the way.
However, it’s important to know that this method isn't without its potential pitfalls. The main challenge lies in your initial estimations. The success of the cost-to-cost method heavily depends on having reliable estimates for the total project costs right from the start. If your initial figures are off, or if costs change significantly without being updated in your calculations, your revenue recognition could become inaccurate. So, while it’s a strong option for many, it does require careful planning and consistent oversight.
Understanding the mechanics of the cost-to-cost method is key to applying it effectively. It’s all about recognizing revenue in proportion to the costs you've incurred on a project. Think of it as matching your income to your effort as you go, which can give you a much clearer view of your project's financial performance over time. This method is particularly useful for long-term projects where waiting until the very end to see your revenue wouldn't give you the insights you need to manage effectively.
So, how do you actually put the cost-to-cost method into practice? It’s a pretty logical process. First, you'll need a solid estimate of the total project cost – this is your baseline and getting it as accurate as possible is crucial. As the project moves forward, you'll meticulously track all the actual costs you're spending. Then, to figure out how much of the project is complete, you simply divide the costs you've incurred so far by that total estimated cost. This gives you a percentage. Finally, you multiply this percentage by the total value of the contract to determine the revenue you can recognize for that period. It’s a systematic way to reflect your project's progress financially.
The heart of the cost-to-cost method is the percentage of completion calculation. The basic idea is: Revenue to recognize equals your percentage of completion multiplied by the total contract price (making sure to subtract any revenue you've already recognized in previous periods). For instance, if your project has an estimated total cost of $16 million and you’ve incurred $4 million in costs to date, your project is 25% complete ($4 million / $16 million = 0.25). You'd then apply this 25% to your total contract value to see how much revenue to record for that accounting period. This approach is fantastic because it allows you to get a more accurate and timely snapshot of your project's financial health rather than waiting until everything is wrapped up.
So, you're weighing your options for revenue recognition, and the cost-to-Cost method has popped up. Smart move to investigate it! This approach isn't just an accounting technicality; it can genuinely shift how you see and manage your long-term projects. When you align revenue with actual work done, it brings a new level of clarity and control. Let's look at some of the big wins you can expect when you adopt this method. From getting paid as you progress to spotting potential issues before they escalate, there are compelling reasons to consider it for your business.
Many companies find that understanding their financial data in real-time is a game-changer, and the cost-to-cost method is a key enabler for this, especially for complex, extended projects. It’s about making your financial reporting work for you, providing insights that drive better decisions and ultimately, a healthier bottom line. This method helps bridge the gap between ongoing operational efforts and their financial reflection, ensuring you're not flying blind until a project concludes. It’s a practical way to ensure your accounting practices truly support your business's operational realities and strategic goals, especially when dealing with contracts that span multiple accounting periods. For businesses aiming for accurate and compliant financial reporting, particularly under guidelines like ASC 606, this method offers a structured and reliable path.
One of the most significant advantages of the cost-to-cost method is that it allows you to recognize revenue in sync with your project's actual progress. Instead of waiting until the very end of a long project to see the income on your books, this method lets you record it proportionally as you incur costs. Think of it this way: as you invest time and resources (the costs), you also get to acknowledge the corresponding slice of revenue. This provides a much more realistic and ongoing picture of your financial performance, ensuring your financial statements accurately reflect the work you're completing over time, which is a core principle of modern revenue standards.
Wouldn't it be great to have a consistently clear view of your project's financial health, rather than waiting for a big reveal at the end? That's exactly what the cost-to-cost method offers. By recognizing revenue and profits as you make headway, you get "a more accurate and timely picture of a project's financial health than waiting until the project's end to recognize revenue." This ongoing insight is invaluable for making informed decisions throughout the project lifecycle. You're not guessing about profitability until the final invoice; you're seeing it unfold. This continuous feedback loop helps you understand your financial standing at various stages, allowing for better strategic planning and resource allocation. You can explore more about gaining such insights on the HubiFi blog.
Beyond just the numbers, the cost-to-cost method can be a fantastic ally for better project management. Because this approach requires you to regularly compare incurred costs against your total estimated costs, it naturally "helps in better project management by encouraging close monitoring of costs and progress, potentially leading to better budget adherence." This isn't just about looking back; it's about looking forward. If costs start to creep up unexpectedly or progress isn't matching expenditure, you'll know sooner. This early awareness allows your team to make timely adjustments, helping to keep the project on budget and on schedule. It fosters a proactive stance, turning financial data into actionable project intelligence, which is crucial for maintaining profitability.
No one likes costly surprises, especially deep into a project. The cost-to-cost method acts like an early warning system for potential financial pitfalls. By continuously tracking actual costs against your estimates, "the cost-to-cost method helps identify potential problems (like cost overruns) early on." You're in a much better position to spot these issues before they become major headaches. This proactive risk identification is key. It gives you the breathing room to investigate, understand the root cause, and implement corrective actions swiftly. Ultimately, this helps you mitigate financial risks more effectively, leading to smoother project execution and more predictable, successful outcomes for your business.
Alright, so we've talked about the good stuff, but like any accounting method, the cost-to-cost approach isn't a magic wand. It comes with its own set of hurdles you'll want to be aware of. Think of it like this: you've got a great recipe, but success still depends on using the right ingredients and techniques. Forewarned is forearmed, right? Being mindful of these potential snags from the get-go can save you a lot of headaches down the line and help you implement this method much more smoothly.
The main things to keep an eye on are getting your cost estimates as spot-on as possible, maintaining really good records (which, let's be honest, takes effort!), ensuring your numbers are always a true reflection of reality, and being ready to adapt when projects take an unexpected turn. If you’re using systems that provide real-time analytics, you'll be better equipped to handle some of these challenges. These systems can offer the up-to-date insights needed to make timely adjustments and maintain accuracy. Let's break these down a bit more so you know exactly what to watch for and how to prepare your business for a smoother experience with cost-to-cost accounting.
This is probably the biggest one. The entire cost-to-cost method really leans on your ability to make solid estimates of the total project costs. If your initial numbers are off—say, you underestimate what the whole thing will cost—you could end up recognizing revenue too quickly. On the flip side, overestimate, and you might be understating your revenue. As AccountingTools points out, "The accuracy of the cost-to-cost method heavily depends on reliable cost estimates for the entire project." Getting this right from the start is crucial because any misstep here can ripple through your financial reporting, potentially giving a skewed view of your project's profitability and your company's overall financial health. This makes robust initial planning and ongoing review essential.
If you're going to use the cost-to-cost method effectively, you absolutely need to be on top of your record-keeping. This means meticulously tracking every single cost related to a project as it happens. It’s not just about collecting receipts; it’s about consistently categorizing and allocating those costs correctly. This can be quite involved, especially for complex, long-term projects. As the folks at RightRev highlight, this method "requires careful and consistent cost tracking, which can be time-consuming and complex." You might find that you need dedicated software or even specific team members to manage this effectively, ensuring all your data integrates seamlessly for accurate reporting and to reduce manual workload.
Let's talk about a sensitive but important point: the temptation to make the numbers look a little better than they are. Because the cost-to-cost method relies so heavily on estimates, particularly the estimate of total project costs, there's a risk that these figures could be manipulated. It's a tough nut to crack, especially when, as Deskera notes, "over 90% of construction projects exceed budget." This just underscores how challenging accurate estimation can be. Maintaining transparency and integrity in your financial reporting is paramount, not just for compliance but for building trust with stakeholders and making sound business decisions based on reliable data.
Projects rarely go exactly as planned, do they? Material prices can suddenly spike, unexpected delays can pop up, or the scope of the project might need to change midway through. These unforeseen events can throw your initial cost estimates way off. When this happens, it directly impacts your revenue recognition calculations. The key here is to be flexible and responsive. As Deskera advises, "It’s crucial to be prepared to adjust figures as the project progresses." This means regularly reviewing and updating your cost estimates and being ready to make those adjustments in your accounting records promptly to reflect the new reality of the project, ensuring your financial picture remains as accurate as possible.
Alright, so you're getting a good feel for the cost-to-cost method. But how does it really stack up against other ways of recognizing revenue? It's super helpful to see them side-by-side to understand why you might lean towards cost-to-cost, or when another method might make more sense for your specific projects. Think of it like choosing the right tool for the job – each has its strengths! We're all about making sure your financial operations are as smooth and accurate as possible, so let's look at a few common alternatives.
The completed contract method is pretty much what it sounds like: you wait until a project is 100% finished, signed, sealed, and delivered before you recognize any revenue from it. "The completed contract method recognizes revenue only when the contract is fully completed," which can lead to pretty dramatic swings in your reported revenue and profit. Imagine baking a complex, multi-tiered cake for a big event – you wouldn't really count your earnings until the client has the cake and is thrilled, right?
The big difference here is timing. With the cost-to-cost method, you recognize revenue gradually, as you incur costs throughout the project. This gives you a much smoother and more consistent financial picture. The completed contract method, on the other hand, can make financial planning feel like a bit of a rollercoaster – quiet for months, then a huge spike in income.
Now, let's talk about the installment method. This one ties revenue recognition directly to the cash you receive. So, if a client pays you in three installments, you recognize revenue in three chunks as those payments hit your bank account. This is different from the cost-to-cost approach, where you're recognizing revenue based on the proportion of costs you've already spent compared to the total estimated project costs. As Netsuite points out, "The installment method recognizes revenue as cash is received, which can delay revenue recognition until payments are made."
The key takeaway? The cost-to-cost method often allows you to recognize revenue earlier, reflecting the work you're actually doing, rather than waiting for cash to come in. This can be a big plus for understanding your ongoing profitability and the true financial health of your projects as they progress.
The cost-to-cost method is a type of percentage of completion (POC) accounting, but it's not the only kid on the block. Other POC methods might use different yardsticks to measure how far along a project is. For instance, some businesses might look at labor hours spent, or the number of units produced, as their guide. The cost-to-cost method, however, hones in specifically on financial costs: what you've spent so far versus what you expect to spend in total.
"Unlike other percentage of completion methods that may use metrics such as labor hours or units produced to measure progress, the cost-to-cost method focuses solely on financial costs," as highlighted by FasterCapital. This specificity can lead to more accurate revenue recognition, especially if your cost estimates are reliable and regularly updated. It provides a clear, financially grounded view of your project's advancement.
When you're using the cost-to-cost method for revenue recognition, it’s not just about plugging in numbers; it's about understanding what those numbers are telling you about your project's financial health and overall progress. Keeping a close eye on a few key metrics is absolutely vital. Think of these as your financial dashboard for each project, giving you the insights needed to steer clear of potential pitfalls and capitalize on opportunities. Regularly monitoring these figures allows you to spot potential issues early, adjust your strategies proactively, and maintain crucial transparency with all your stakeholders, from your internal team to clients and investors. This vigilance is especially important for high-volume businesses or those managing multiple complex projects simultaneously, where small discrepancies can quickly escalate.
Effectively tracking these key numbers does more than just keep your books in order; it empowers you to make smarter, data-driven decisions. You'll be better equipped to manage resources, control costs, and ensure that each project contributes positively to your bottom line. Furthermore, in an environment where regulatory compliance is non-negotiable, having a firm grasp on these metrics is essential for meeting standards like ASC 606 revenue recognition. It’s about building a resilient financial framework that supports sustainable growth and provides clear visibility into your operational performance. Neglecting these indicators can lead to inaccurate financial statements, missed budget targets, and ultimately, compromised project profitability. So, let’s explore the specific numbers that demand your attention to truly master the cost-to-cost approach and ensure your financial reporting is both accurate and insightful.
The cornerstone of the cost-to-cost method is undoubtedly the Percentage of Completion (POC). This figure is what directly determines how much revenue you can recognize at any given stage of your project. It's calculated by taking the total costs incurred on the project to date and dividing them by the current total estimated costs for the entire project. For example, if you've spent $25,000 on a project that you estimate will cost $100,000 in total, your POC is 25%. This means you're justified in recognizing 25% of the total contract revenue. Consistently and accurately calculating this percentage is fundamental for reflecting true project progress in your financial statements.
Cost variance is the difference you find between your budgeted or estimated costs and the actual costs you've incurred. This metric is critical because the reliability of the cost-to-cost method heavily relies on accurate initial and ongoing cost estimations. If your total project costs are underestimated, you might recognize revenue too quickly; if overestimated, too slowly. Both scenarios can distort your financial picture. Regularly analyzing cost variances helps you pinpoint if your project is trending over or under budget. Identifying these differences early allows you to investigate the root causes, make timely adjustments to your project execution, or revise your total cost forecasts to maintain the integrity of your revenue recognition.
Earned Value (EV) provides a powerful measure of the actual work accomplished in terms of its budgeted cost. Within the cost-to-cost framework, it helps you understand how much of the project's financial value has truly been "earned" based on the costs put in so far. While related to POC, Earned Value analysis often involves comparing the budgeted cost of work performed against the actual cost of work performed and the budgeted cost of work scheduled. For revenue recognition using cost-to-cost, the core idea is that the revenue earned is proportional to the costs incurred against the total anticipated costs, applied to the contract price. This helps ensure that recognized revenue genuinely reflects the progress made.
While you begin every project with a total estimated cost, this figure should be dynamic, not static. It's crucial to continuously forecast and update your estimate of the final project costs as work progresses. Projects are rarely straightforward; material prices can change, labor efficiencies might vary, or unforeseen challenges can emerge that impact the budget. Given that a significant number of projects, particularly in sectors like construction, tend to exceed initial budgets, maintaining an accurate forecast for the total cost to complete is essential. This diligence ensures your Percentage of Completion calculation remains reliable, leading to more precise revenue recognition and fostering transparency with clients about any potential budget adjustments.
Deciding to use the cost-to-cost method is a significant step, and like any big decision, a little prep work goes a long way. If you're leaning this way, it’s great you’re doing your homework! This method can offer a clearer view of your project financials as they happen, but it's not a plug-and-play solution. Let's walk through a few key areas to think about to make sure it’s a smooth transition and the right fit for your business, ensuring your financial reporting stays accurate and insightful.
So, you're thinking the cost-to-cost method might be the way to go for your projects? Smart move to weigh your options! Before you jump in, let's talk about your accounting systems. "Choosing the right revenue recognition method is critical to ensuring accurate financial reporting," and the cost-to-cost method is one of several recognized approaches, each suited to different business models and contract types. Your current setup needs to be up for the task of detailed cost tracking and calculating that percentage of completion. Can it handle the nitty-gritty of ASC 606 compliance that this method often entails? If not, you might need to look into upgrades or solutions that can provide the precision this method demands. Getting this right from the start will save you a ton of headaches later.
Alright, systems are one piece of the puzzle, but what about your team? The cost-to-cost method isn't a set-it-and-forget-it kind of thing. As the experts at RightRev point out, "The cost-to-cost method requires meticulous documentation and tracking of costs, potentially requiring specialized software or personnel." This means your team needs to be comfortable with careful record-keeping and have the essential accounting skills to manage these details. Think about training sessions on how the method works, the importance of precise documentation, and how to use any new tools you bring in. Everyone involved, from project managers to your finance folks, needs to be on the same page and understand their role in making it work smoothly.
Okay, so your systems are getting ready and your team is gearing up. Now, how do you make cost-to-cost fit neatly into your existing ways of doing things? This method has a pretty big impact on your financial statements. "By aligning revenue recognition with project expenditure, this method ensures financial statements present a synchronized reflection of a company's operational performance," as Accounting Insights aptly puts it. You'll want to ensure this method syncs up with your project management updates and financial reporting cycles. Think about how data will flow from project cost collection to your general ledger. Smooth integrations between your systems are key here, so information is consistent and you’re not stuck doing tons of manual data entry or reconciliation.
Alright, so you're looking to get the most out of the cost-to-cost method for your projects. That's a smart move! To really make it work effectively and ensure your financial reporting is spot-on, there are a few key practices that can make a world of difference. Think of these as your go-to strategies for keeping everything running smoothly, accurately, and providing you with the clear insights you need.
One of the absolute pillars of the cost-to-cost method is starting with, and maintaining, reliable cost estimates for the entire project. As the experts at AccountingTools put it, "If total costs are underestimated or overestimated, the reported revenue can be significantly affected." This isn't a task you do once and then forget. You'll want to regularly revisit and adjust your estimates as your project progresses. If material prices shift or you foresee needing different labor hours, updating your total estimated costs promptly is crucial. This proactive approach ensures your revenue recognition stays accurate and truly reflects the project's financial journey, helping you maintain overall financial reporting accuracy.
If there’s one piece of advice to tattoo on your brain when using cost-to-cost accounting, it’s this: document everything. Every single cost that contributes to the project needs a clear record. This method "requires meticulous documentation and tracking of costs," as highlighted by RightRev. While it might sound a bit demanding, thorough documentation is your best defense during audits and the bedrock of precise calculations. From the get-go, establish a straightforward system for how costs are recorded, categorized, and stored. Leveraging robust accounting integrations can significantly streamline this, keeping your data organized and readily available whenever you or your team need it.
Consistency is a golden rule in accounting, and it’s particularly vital when you're applying the cost-to-cost method across multiple projects. Asset Infinity correctly points out that "Using the same accounting method for all projects is crucial for accurate financial reporting." When you apply the cost-to-cost method uniformly, your financial statements become more comparable, offering a clearer and more reliable picture of your company's overall performance. This consistency not only simplifies your internal analysis but also makes your financial data more trustworthy for investors and other external stakeholders. It’s about building a financial narrative that is both predictable and easy to understand, which is a core part of our mission at HubiFi.
The cost-to-cost method does more than just help you recognize revenue; it’s also an excellent tool for keeping a close watch on your project's financial pulse, especially your cash flow. Because revenue is recognized incrementally as costs are incurred, it "helps identify potential problems (like cost overruns) early on," according to Deskera. Use the ongoing insights from your calculations to make more informed cash flow forecasts. By regularly comparing your actual expenditures against your budget and the revenue you've recognized, you can catch any deviations quickly. This allows you to address small issues before they escalate, keeping your projects financially sound.
When you use the cost-to-cost method, it doesn't just change how you track project expenses; it directly shapes how your company's financial health looks on paper. This accounting approach has a significant ripple effect, influencing everything from your reported income to how investors perceive your business's stability and growth potential. It’s all about painting an accurate picture of your financial journey as projects unfold. Think of it as giving your stakeholders a real-time, or close to real-time, view of how a project is contributing to your bottom line, rather than making them wait until the very end. This can be incredibly valuable for long-term projects where understanding ongoing performance is key.
The beauty of this method is that it ties revenue recognition directly to the actual work and expenditure happening on the ground. This means your financial statements become a more dynamic and current reflection of your business operations. For companies managing complex, lengthy projects, this can provide much-needed clarity and help in making informed decisions along the way. Let's look at how this plays out specifically on your financial statements and what it means for those who are keeping a close eye on your numbers.
The cost-to-cost method really changes the game for how your revenue and profit appear on your financial statements. Instead of waiting until a project is completely finished, you get to recognize revenue in stages, directly tied to the costs you've incurred. Think of it this way: as you spend on a project, you also show the income earned from that portion of the work. This creates a synchronized reflection of your operational performance over time. Unlike methods that might measure progress by hours worked or units completed, the cost-to-cost approach focuses squarely on the financial outlay, comparing what you've spent so far against the total estimated project costs. This gives you a more dynamic and ongoing view of your profitability as the project moves forward.
Investors and stakeholders pay close attention to your financial statements, and the cost-to-cost method can significantly influence what they see. The key here is the accuracy of your cost estimates. If your initial projections for total project costs are off, it can distort your reported revenue and profit figures. This, in turn, impacts those all-important key financial ratios that investors use to gauge your company's health—things like profit margins and return on investment. When your estimates are solid and consistently applied, this method provides a transparent view of your project's financial progress. Choosing the right approach to recognize revenue is vital for accurate reporting, and for long-term projects, cost-to-cost can offer valuable clarity, provided those underlying cost estimates are reliable.
Using the cost-to-cost method isn't just about getting your numbers right; it's also about playing by the rules and making it work for your specific field. Let's talk about how to stay compliant and tailor this approach to your industry's unique needs. This is where a solid understanding can really help your business thrive, especially when you're juggling long-term projects and aiming for accurate financial reporting.
When it comes to revenue recognition, especially for long-term contracts, there are key accounting standards you need to know: ASC 606 and IFRS 15. The good news is that the cost-to-cost method generally aligns well with these rules. Both standards emphasize that you should recognize revenue as you transfer control of goods or services to your customer. Think of it as matching your revenue to your progress.
For companies following ASC 606, the guidance requires a method that accurately shows this transfer of control. For many long-term projects, the cost-to-cost method is often the most suitable way to achieve this. It provides a systematic approach to recognizing revenue over the life of the contract, reflecting the ongoing value you deliver. Staying on top of these standards is crucial for accurate financial reporting and can make your audits much smoother.
Let's be honest, tracking every cost associated with a long-term project can feel overwhelming. This is where technology becomes your best friend. Using the right accounting software can make a world of difference. It can automate many of the cost-to-cost calculations and keep your tracking precise, which is a huge time-saver and helps reduce errors. Imagine having those numbers crunched for you, giving you more time to focus on the project itself.
Beyond accounting software, consider implementing project management tools. These systems are fantastic for keeping a close eye on project expenses, providing regular progress updates, and maintaining strong internal controls. When your team can easily log costs and track milestones, you get a much clearer picture of where things stand, making the cost-to-cost method more effective and reliable. HubiFi offers seamless integrations that can help streamline these processes.
The cost-to-cost method isn't a one-size-fits-all solution, but it’s particularly effective in certain industries. Think about sectors with long-term contracts where costs, while significant, tend to be fairly predictable. Construction, aerospace, and defense are prime examples. In these fields, projects span months or even years, and the cost-to-cost approach provides a logical way to recognize revenue incrementally.
Take the construction industry, for instance. It’s known for projects often going over budget – some studies suggest over 90% do! So, continuous monitoring of project costs and progress isn't just good practice; it's essential for compliance and profitability when using the cost-to-cost method. Regularly comparing actual costs to your estimates will help you catch deviations early and make necessary adjustments, keeping your financials and your project on solid ground.
My project costs often change. How does the cost-to-cost method handle that? That's a super common scenario! The key is to regularly review and update your total estimated project costs. When you realize costs are going to be higher or lower than you initially thought, you adjust that total estimate. This updated estimate is then used for your percentage of completion calculation moving forward, ensuring your revenue recognition stays as accurate as possible with the latest information.
Is the cost-to-cost method suitable for smaller businesses, or is it mainly for large corporations? While it's often associated with large-scale projects in industries like construction or aerospace, the cost-to-cost method can absolutely work for smaller businesses too, especially if you handle projects that span multiple accounting periods. The main thing is whether the method provides a clear and accurate picture of your project's progress and financial performance, regardless of your company's size.
How frequently should I be calculating the percentage of completion for my projects? Ideally, you'll want to calculate your percentage of completion in line with your regular financial reporting cycle – so, at least monthly if you do monthly reporting, or quarterly if that's your schedule. For very long or complex projects, more frequent internal checks can also be beneficial to keep a close eye on progress and costs.
What's the most common pitfall to avoid when implementing the cost-to-cost method? The biggest hurdle is often relying on outdated or inaccurate total cost estimates. If your initial estimate for the entire project is off, or if you don't update it as things change, your revenue recognition will be skewed. Diligent and regular updates to your cost forecasts are truly essential to make this method work well.
If I'm using a different revenue recognition method now, how difficult is it to switch to the cost-to-cost approach? Switching accounting methods does require careful planning. You'll need to ensure your team understands the new process, your accounting systems can handle the detailed cost tracking required, and that you apply the change consistently. It's also wise to consult with an accounting professional to make sure the transition aligns with accounting standards and is documented properly.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
Copyright © 2025 HubiFi | All rights reserved.
