Using % of completion method in construction accounting, when would you record the retainage on the contract? As the job progresses, I record as income the % completed and adjust for over or under billings. Is that correct?
How do you explain to a contractor, that his estimate of completion, based on "knowing
how much has been completed" compared to what is actually completed based on materials, labor and indirect costs in the general ledger are not the same?

When to record retainage as it is earned would be the best answer but that is not practical, do it at the end of the accounting period.

Your method of recognizing income sounds good to me. I would need a more concrete example to tell you for sure.

How to explain to the contractor... Well this could be quite difficult I can imagine. I guess you have to say look accounting is only based on things that are measurable. How much of the job he feels is completed is not a measurable thing. What if you were in an audit situation, it not like you can tell the auditor well contractor x said it was 90% done. We just cannot work that way as accountants, which I am sure you know and have to deal with every day.

Good luck Sue!