Our construction company has recently enhanced our supply chain efforts and will begin receiving sizable vendor rebates in the upcoming months/years, but we're unsure as to whether the income from those rebates can be recognized right away upon receipt or whether they must be recognized under the percent complete recognition of the jobs they related to, which would delay recognition over what could be a long horizon (years). Any experiences or insights would be appreciated. Thanks!
Accounting For Vendor Rebates Received Via Percent Complete Rev Rec
Answers
Jennifer - The construction company I work for recognizes vendor rebates when received as other revenue. I think that trying to recognize the rebates under the percent of completion method would be too much of a hassle although I assume it can be done. Rebate checks are essentially a bonus that we use for company retreats, Christmas parties, and similar company events.
Someone on our project development side tracks purchases and expected rebates to be received from the suppliers. Since the project developers do the bulk of the buyouts and arrangements they keep up with that information. We in
I could see you wanting to recognize the rebates against job cost, especially from a PM bonus perspective. The problem with this approach could depend on the type of contract the company has. For instance, if you have cost plus job, and you use the rebates to reduce cost, your revenue received will be less because you've reduced costs associated with the job. Whereas, if you have a stipulated sum contract without a cost certification or HUD audit, I could see it being advantageous because it would help the job to appear to be under budget, if there were cost overruns that didn't exceed the rebate amounts received.
I hope this help. This is, of course, my opinion and what I've experienced.
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