Large overbillings or underbillings can be an indication of problems that could jeopardize the stability of a contractor’s bond program. Generally Accepted Accounting Principals (GAAP) state that to be accurate, the best way for a contractor to report earnings is most often on the Percentage of Completion (POC) method of accounting. This method ties together what the contractor actually earned, with what they actually billed, showing differences as either assets or liabilities on the balance sheet.
For example, if a contractor is 50% complete with the costs on a contract, then they should only have billed 50% of the total contract price on the job.