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A manufacturer implements revenue recognition policy to better understand profitability

BerryDunn’s Commercial Practice Group partners with clients to provide insights that inform effective growth strategies, help them assess and manage risk, and optimize return strategies for better profitability. 

With the help of BerryDunn’s technical accounting specialists, an engineer and manufacturer of custom automated machinery systems was able to implement a compliant and consistent revenue recognition policy to better understand the profitability of their different business divisions.

The challenge

A company that has a business division that engineers and manufactures automated machinery systems was experiencing lower than expected profit margins. The company’s accounting system did not provide profit and loss statements by division, so this had to be done manually.

The revenue related to the custom automation business division experienced major fluctuations in revenue from month to month and year to year. It was determined that the revenue recognition policy was not taking into consideration percentage of completion in line with US GAAP. Because of this, there was no accurate period profit and loss statement, and management could not determine the profitability by division.

The solution

BerryDunn worked with management to determine jobs open at the end of each period, the costs incurred on open jobs, as well as a relevant metric to calculate percentage of completion at each financial reporting date.

A workable template to calculate percentage completion was drafted by BerryDunn in collaboration with management to utilize in the financial close process.

The outcome

Management had accurate, US GAAP-compliant financial statements to:

  • Assess the profitability of each business division and make decisions about where changes in the business needed to be made
  • Submit to the bank as part of annual compliance
  • Use for accurate income tax filings

Learn more about how BerryDunn helps manufacturers build actionable strategies for short- and long-term success, or contact a member of our team.

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