In construction accounting, we recognize revenue on what’s called the percentage of completion method on a cost-to-cost basis (there are other methods, that one’s just the most common). All that means is that we estimate the cost to finish the job, and if 37% of those costs are in, we recognize 37% of the profit on the job.
One principle of accounting under this method is that we have to recognize losses as soon as we know they are there. It’s kind of a raw deal, but such is the conservatism of generally accepted accounting practices. If, for instance on that job that’s 37% done, we discovered that we would lose $10,000, we’d have to recognize the entire $10k as loss right now, not just 37% of it.
On Job1, we estimate a profit, so we recognize 69% of the revenue to match the 69% of the costs that we’ve incurred. On Job2, since we estimate a loss of $15,000, we recognize only enough revenue to realize the entire loss. The percent complete formula is Actual Cost divided by Estimated Cost.