When materials are delivered but not yet installed, their cost may not reflect progress toward completing the work. If the owner controls the materials, the material is distinct-not-yet-installed, and you aren’t significantly involved in designing or making it, ASC 606-10-55-21 says to exclude its cost from the progress measure and recognize revenue equal to the cost (zero margin) until it’s installed.
This is an accounting concept. Stored materials on a pay app (G703 column F) is the billing concept; the two often overlap but aren’t the same thing.
Why it matters
Big-ticket equipment (switchgear, elevators, air handlers) can make a job look far more complete than it is, and pull margin forward.
Worked example
Contract $2,000,000; EAC $1,600,000 including $200,000 of delivered switchgear; cost to date $800,000 including it. Progress = $600,000 ÷ $1,400,000 = 42.857%. Earned = $200,000 + $1,800,000 × 42.857% = $971,428.57, not the naive $1,000,000 (illustrative).
Common mistakes
- Counting delivered equipment as progress.
- Excluding it but forgetting to recognize the zero-margin revenue.
How os.construction handles it
The WIP schedule that would apply this treatment is not built in the accounting preview yet. See Job cost and WIP.