Anybody Know How Homebuilders Recognize Revenue? - Business, Finances and Investing Forum

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Anybody Know How Homebuilders Recognize Revenue?

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01-24-2008 , 01:46 PM

zoobird

banned

Join Date: Jan 2004 Posts: 1,545

Does anybody know how homebuilders recognize revenue? When I bought my house, I put a deposit down almost a year before the house was built. Do homebuilders book the revenue as soon as they have the deposit? Once they get the downpayment? After the sale closes? Or something else?

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01-24-2008 , 11:55 PM

riverdance

old hand

Join Date: Jan 2005 Posts: 1,544

(attempting to answer this based on acct classes taken a dozen years ago)

there are 3 methods:

1. completed contract - the builder wouldnt book any revenue until the project is complete.

2. % of completion - the builder books income as the project is completed. eg: if 40% of the house is built, he can book 40% of the revenue

3. damn, i can't remember the third

in your case, there is no way the deposit would have been able to be booked as revenue before const had started.

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01-25-2008 , 12:02 AM

SmileyEH

Carpal \'Tunnel

Join Date: Jun 2004 Posts: 8,049

3. When payment is received (can be in part).

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01-25-2008 , 02:32 AM

AJackson

old hand

Join Date: Nov 2005 Posts: 1,905

I'm a homebuilder but I'm not sure exactly what you are asking.

When I receive a deposit it gets recorded as a deposit in that individual home's P&L, but as far as the overall business is concerned that money doesn't exist. For example you give me a deposit in 2007, I start your house in 2008 and finish it in 2009 all revenue and profit are accounted for in 2009.

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01-25-2008 , 06:39 AM

zoobird

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Join Date: Jan 2004 Posts: 1,545

Quote:

Originally Posted by AJackson

For example you give me a deposit in 2007, I start your house in 2008 and finish it in 2009 all revenue and profit are accounted for in 2009.

Thanks. That's what I was looking for.

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01-25-2008 , 07:53 AM

adios

Carpal \'Tunnel

Join Date: Sep 2002 Posts: 22,540

Logic would tell you that someone would have to take delivery before the sale can be booked.

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01-25-2008 , 08:05 AM

zoobird

banned

Join Date: Jan 2004 Posts: 1,545

Quote:

Originally Posted by adios

Logic would tell you that someone would have to take delivery before the sale can be booked.

Accounting rules are not based entirely on logic.

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01-25-2008 , 08:08 AM

adios

Carpal \'Tunnel

Join Date: Sep 2002 Posts: 22,540

Quote:

Originally Posted by zoobird

Accounting rules are not based entirely on logic.

I disagree, strongly btw.

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01-25-2008 , 08:15 AM

zoobird

banned

Join Date: Jan 2004 Posts: 1,545

And actually, common sense logic would tell me that non-refundable payments could be booked immediately. Only the fact that I've had some exposure to accounting rules in my job made me suspect that in this case it might not be booked until the house is delivered. So this is a pretty good example of how accounting rules can be somewhat illogical or counterintuitive.

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