Uninstalled Materials and Implementation Under the New Revenue Recognition Standards

Typically, uninstalled materials consist of standard materials that are easily transferable to other jobs and those which are custom ordered for projects.  The cost of standard materials was never to be included in job costs until installation occurred.  Conversely, if custom materials met certain criteria, you could include the cost in job progress prior to new standards implementation. (If you would like to understand more about how to recognize uninstalled materials under the new standard, click here.)

After implementation, materials are treated as follows:

  • If the contractor still retains control of the materials, they are reported on the contractor’s balance sheet as inventory.
  • If the job owner has control of the materials, the cost of materials only (no profit) is included in job costs and revenue.

Ask yourself the following questions to see if you are prepared:

  • Who within your organization is responsible to identify uninstalled materials?
  • Who is assessing who has control of those materials?
  • Who is determining the dollar value to assign to uninstalled materials?
  • How are you getting the appropriate information out of your system to correctly report this information?
  • Do you need to make changes to your system to assist in the above calculations and assessments?
  • Do any changes need to be made in internal controls to properly account for uninstalled materials?

KatzAbosch has individuals experienced in contractor issues and trained in process improvement using lean six sigma principles that can help you through this transition. If you have any questions about this information please contact your KatzAbosch representative; or contact us by clicking here.

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