Revenue recognition isn’t just an accounting technicality — for contractors, it determines how jobs look on financial statements, impacts bonding capacity, and influences tax and bank reporting.
In 2018, the ASC 606 standard fundamentally changed the way contractors must recognize revenue. Instead of relying on legacy rules (like the old percentage-of-completion method under ASC 605), ASC 606 introduced a five-step model for recognizing revenue based on the transfer of goods or services to customers.
This guide breaks it all down for contractors:
✅ What ASC 606 means for construction and contracting firms
✅ How the five-step model works
✅ Why WIP reports and job cost systems are central to compliance
✅ And how PivotXL can simplify ASC 606 for your team
What Is ASC 606 and Why Does It Matter for Contractors?
ASC 606, “Revenue from Contracts with Customers,” is the revenue recognition standard issued by the Financial Accounting Standards Board (FASB). It applies to nearly all industries — but for construction, it replaced decades-old rules and reshaped how contractors calculate revenue.
Before ASC 606, most contractors used the percentage-of-completion (POC) method under ASC 605. ASC 606 still allows POC, but it changes when and how performance obligations are identified and measured.
For contractors, ASC 606 impacts:
- When you can recognize revenue on long-term jobs
- How to handle change orders (must they be separate contracts or modifications?)
- How to report retainage, overbilling, and underbilling
- How disclosures are presented to auditors, banks, and bonding companies
The ASC 606 Five-Step Model for Contractors
ASC 606 requires companies to follow a five-step process for revenue recognition:
1️⃣ Identify the Contract with a Customer
Contracts might be a signed agreement, purchase order, or even a combination of documents.
👉 For contractors: Make sure you document all agreements, including change orders, in writing.
2️⃣ Identify Performance Obligations
You must decide what distinct goods or services you’ve promised to deliver.
👉 Example: A contract for a school build may have separate performance obligations for site prep, building construction, and landscaping.
3️⃣ Determine the Transaction Price
This is the total amount you expect to be paid — including change orders, claims, incentives, and penalties.
👉 For contractors: Variable consideration (like incentive fees) must be estimated carefully and updated as jobs progress.
4️⃣ Allocate the Transaction Price
If there are multiple performance obligations, allocate the price to each obligation based on its standalone value.
👉 Example: The site prep might be valued at $200,000, while the full building is $1.5M.
5️⃣ Recognize Revenue as Performance Obligations Are Satisfied
Revenue is recognized as you meet obligations — typically using percentage of completion for long-term contracts.
👉 Costs incurred, milestones achieved, or surveys of work performed are common ways to measure completion.
ASC 606 Revenue Recognition for Contractors – Challenges
Even though ASC 606 provides structure, contractors face real-world challenges:
- Change orders – Are they separate contracts, or contract modifications?
- Retainage – Must be tracked separately as a contract asset.
- Over/underbilling – Revenue recognized and invoicing often diverge; ASC 606 requires careful classification.
- Multi-job reporting – Contractors with many projects (or multiple entities) must consolidate ASC 606 results accurately.
- Disclosure requirements – ASC 606 expanded the notes needed for financial statements, increasing reporting burden.
How PivotXL Helps Contractors Manage ASC 606
ASC 606 compliance isn’t just about calculations — it’s about consistent processes, accurate data, and clear reporting. That’s where PivotXL steps in.
Here’s how PivotXL simplifies ASC 606 for contractors:
✅ Direct Integration with Sage 100 Contractor
PivotXL connects directly to Sage (and other accounting systems), pulling job costs, budgets, billings, and contract details — so the data you need for ASC 606 is always live.
✅ Multi-Dimensional Data Cube for Jobs
All job costs, cost codes, and phases flow into a central data cube. This allows tracking of:
- Costs incurred
- Contract price and changes
- Percent complete by job
The cube structure makes ASC 606 calculations consistent across all projects.
✅ Automated POC and Revenue Calculations
Instead of manually updating spreadsheets, PivotXL calculates:
- Percent complete
- Revenue recognized
- Over/underbilling (contract assets/liabilities)
The system updates instantly when PMs or finance teams enter new costs or projections.
✅ Handling Change Orders and Projections
PivotXL’s Excel-based templates allow PMs to enter change orders and revised projections directly. The system adjusts revenue recognition and performance obligation tracking automatically.
✅ Roll-Ups for Multi-Entity and Consolidation
ASC 606 reporting isn’t just per job. PivotXL rolls up job data to division, region, and company-wide levels — ensuring consistent, consolidated reporting for auditors, bonding companies, and lenders.
✅ Built-In Audit Trail
Every change is logged. You can see who updated what and when — giving auditors and controllers a clear record for compliance.
Conclusion
ASC 606 changed revenue recognition for contractors forever. It’s no longer enough to just “do POC” — you must document contracts and obligations, track change orders properly, and present clean disclosures.
PivotXL makes that process easier. By pulling Sage 100 Contractor data into a structured cube, automating POC calculations, and rolling up results across jobs and entities, PivotXL gives you ASC 606-ready reporting — without building endless spreadsheets.
➡️ Looking to simplify Work In Progress Reporting?
Explore how PivotXL can bring structure, automation, and accuracy to your WIP and revenue reporting.
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