Revenue Recognition and Advanced
How RedTeam handles advanced financial reporting and revenue recognition.
Advanced revenue recognition features for measuring project profitability, determining the value of financial assets.
Download this free ebook to learn more about revenue recognition and advanced financial reporting.
What we'll go over:
The purpose of business accounting is to measure profitability, control cash flow, and to periodically quantify financial net worth. While accounting for most businesses is fairly straightforward, construction contractors face unique financial reporting challenges due to the fact that projects are often performed over long terms and span multiple accounting periods.
Determination of financial results, therefore, must rely on estimates of final contract values and costs long before projects are completed.
For most businesses, measuring profitability is a simple matter of matching customer bills and vendor invoices, which are generally presented and paid, more or less, simultaneously as work is performed or products are delivered.
Therefore, revenue is usually recognized immediately as bills are presented to customers. Construction contracts, on the other hand, are long term by nature, and typically span multiple accounting periods.
Revenue is compared to the Billings to Date, and differences result in adjustments to Revenue, with offsetting entries to either Overbilling or Underbilling.
Under certain circumstances, contractors may choose to recognize revenue for work performed on potential change orders, so-called “unpriced changes” according to accountants and addressed in FASB ASC 606.
In other words, the decision to recognize revenue for unpriced changes is an accounting policy election. As a configuration option, RedTeam supports the inclusion of unpriced changes in estimated contract value for the purpose of recognizing revenue.
Creating accounting periods with RedTeam:
The first period entered should be for your prior fiscal year. The end date for this first Accounting Period must contain the last day of your “Prior” Fiscal Year. Upon Save, RedTeam will automatically associate all existing Transactions through the date specified to this Accounting Period.