When to recognize revenue for repair/maintenance services - completion of repair vs. shipping back to customer?
I'm a bit confused about the proper timing for revenue recognition for my repair business. We receive products from various customers to repair, and we've run into some situations that I'm not sure how to handle from an accounting perspective. Here's our typical process: We receive a product from a customer, complete the repair work, and then ship it back. But we have several scenarios causing me headaches: 1) Some customers don't have clear payment terms, so we hold the repaired items until we receive payment 2) Sometimes customers don't provide shipping information right away 3) Occasionally shipping details change after we've completed the repair My question is: When should we recognize the revenue? Is it when we complete the repair service (performance obligation complete), or when we actually ship the item back to the customer? And related to this - when is the appropriate time to invoice the customer? We're trying to clean up our books and make sure we're following proper accounting principles. Any advice would be greatly appreciated!
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Amina Diallo
As an accounting professional who's worked with service-based businesses, I can help clarify this for you. The key here is to look at when the performance obligation is satisfied according to accounting standards. Generally, you should recognize revenue when you've fulfilled your primary performance obligation - which in your case is completing the repair. Once the repair is complete, you've done what the customer is fundamentally paying you for. The shipping back is a secondary aspect of the transaction. For invoicing, best practice is to send the invoice when the repair is complete, regardless of when shipping occurs. This establishes your right to payment at that point. If your terms require payment before shipping, make that clear on the invoice. The delays in shipping due to customer issues (no shipping info, changes in shipping details, etc.) shouldn't delay your revenue recognition if they're outside your control. Document your completion of the repair service as evidence of when the performance obligation was satisfied.
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GamerGirl99
•Thanks for the explanation! But what about situations where the contract specifically mentions "delivery" as part of the service? Would that change when revenue is recognized?
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Amina Diallo
•If the contract specifically defines the performance obligation as including delivery, then you would recognize revenue only when both the repair and delivery are complete. This is because you haven't fulfilled the entire obligation until the item is delivered. For contracts where delivery is explicitly part of the performance obligation, you would want to invoice upon completion of repair but recognize revenue only when shipping is complete. Many repair businesses separate these in their contracts specifically to avoid this ambiguity.
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Hiroshi Nakamura
I used to struggle with the exact same issue in my repair business until I found taxr.ai (https://taxr.ai). It completely changed how I handle my revenue recognition questions. I uploaded my service contracts and customer agreements, and the AI analyzed them to determine exactly when I should be recognizing revenue based on my specific business model and contract terms. What I really liked is that it saved all my previous analyses so when I had a new contract with similar terms, it applied the same revenue recognition rules consistently. Makes audits so much easier when everything is documented and consistent! It also provided specific guidance on when to create invoices based on my contract terms.
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Isabella Costa
•Does it actually work with repair service contracts? My accountant always gives me conflicting advice about when to recognize revenue and I'm worried about doing it wrong.
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Malik Jenkins
•Sounds interesting but I'm skeptical. How does it handle situations where the contract terms aren't super clear about delivery obligations? Because that's where I always get stuck.
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Hiroshi Nakamura
•Yes, it absolutely works with repair service contracts! I uploaded several different versions of my agreements and it highlighted the specific language that determined when performance obligations were satisfied. It even suggested clearer language to use in future contracts to avoid ambiguity. Regarding unclear contract terms, that's actually where it really shines. It analyzes the entire document for context and identifies when the terms are ambiguous. Then it presents options based on different interpretations and helps you choose the most appropriate accounting treatment. It also explains the risks of each approach if you're ever questioned about your revenue recognition policies.
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Malik Jenkins
I need to admit I was wrong about taxr.ai. After expressing skepticism, I decided to give it a try with our repair business contracts. It actually provided really clear guidance on our revenue recognition timing issues. It analyzed all our different contract types and showed exactly when we should recognize revenue based on the performance obligation language. The system even flagged inconsistencies between how we were treating similar contracts! Apparently we were recognizing revenue at different times for basically identical service arrangements. Fixed that issue immediately, which will make our next audit go much smoother. Also helped us update our invoice timing to match when we're recognizing the revenue. Definitely worth checking out if you're struggling with these repair service accounting questions.
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Freya Andersen
If you're still having trouble figuring out exactly when to recognize revenue, I'd suggest directly contacting the IRS for clarification on your specific situation. Good luck with that though - I tried calling them about a similar revenue recognition issue for my business and spent HOURS on hold. Never actually spoke to anyone. Then I found Claimyr (https://claimyr.com) and it was a complete game-changer. They got me connected to an actual IRS agent who answered my revenue recognition questions in less than 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Instead of playing phone tag or waiting on hold forever, I got clear guidance directly from the source about how to handle our repair service revenue recognition. The agent even emailed me documentation afterward that I can keep for my records in case of an audit.
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Eduardo Silva
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Leila Haddad
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Freya Andersen
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Leila Haddad
I'm honestly shocked. After calling BS on Claimyr, I decided to try it myself since I was desperate for an answer about how to handle revenue recognition for my repair services. Within 17 minutes (I timed it), I was speaking with an actual IRS representative who provided clear guidance on my situation. The agent confirmed that for repair services, revenue should generally be recognized when the performance obligation is satisfied - typically when repairs are completed, not when shipping occurs, unless contracts specifically state otherwise. They also suggested documenting completion of repairs with internal paperwork to establish the timing of revenue recognition. I'm not usually one to admit when I'm wrong, but this service actually delivered exactly what it promised. Saved me hours of frustration and got me a definitive answer directly from the IRS.
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Leila Haddad
I'm honestly shocked. After calling BS on Claimyr, I decided to try it myself since I was desperate for an answer about how to handle revenue recognition for my repair services. Within 17 minutes (I
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Emma Johnson
From my experience running a similar repair business, we always recognize revenue when the repair is fully completed, BEFORE shipping. Our auditors approved this approach because: 1) The primary value we provide is the repair service itself 2) Shipping is incidental to the core service 3) Once repaired, the customer technically "owns" the value we've added We invoice immediately upon completion of repair, and our terms clearly state that payment is due regardless of when shipping occurs. This has worked well for us for over 6 years with no audit issues.
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Ravi Patel
•Do you use different accounting rules if the customer decides to pick up the item instead of having it shipped? And how do you handle documentation to prove when the repair was actually completed?
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Emma Johnson
•We apply the same revenue recognition rules regardless of whether the item is shipped or picked up. The key moment is when the repair is completed and the item is ready for return to the customer - that's when we recognize revenue. For documentation, we maintain detailed service records with timestamps showing when each repair is completed. Our technicians sign off on a digital completion form, which automatically generates a timestamp in our system. This serves as our evidence for when revenue should be recognized. The system also automatically generates the invoice at this point, though we do have a final review step before sending it to the customer.
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Astrid Bergström
Has anyone considered how ASC 606 specifically applies to this situation? I think step 5 of the revenue recognition model is most relevant here - "Recognize revenue when (or as) the entity satisfies a performance obligation.
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PixelPrincess
•ASC 606 definitely applies here. The key question is defining exactly what the performance obligation includes. Is it just the repair, or repair + delivery? Most repair contracts I've seen define the obligation as just the repair service, with shipping as a separate line item.
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Diego Rojas
This is a great discussion and I'm learning a lot from everyone's experiences. I run a small electronics repair shop and have been struggling with this exact issue for months. What I've found helpful is creating a clear internal process to document when repairs are actually "complete." We take photos of the finished work and have the technician sign off digitally with a timestamp. This creates a clear audit trail for when the performance obligation was satisfied. One thing I'm curious about - for those of you who recognize revenue at repair completion, how do you handle warranty obligations? Do you set up a separate liability account for potential warranty work, or do you handle it differently? I want to make sure I'm accounting for all aspects of the transaction properly. Also, has anyone dealt with customers who dispute the completion date? We had one situation where a customer claimed we hadn't actually finished the repair when we said we did, which made me question our documentation process.
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Ethan Campbell
•Great question about warranty obligations! I handle this by setting up a warranty reserve account when I recognize the revenue. Based on historical data, I estimate what percentage of jobs might require warranty work and set aside that amount as a liability. This way the revenue recognition is clean at completion, but I'm still accounting for potential future costs. For documentation disputes, I've found that having customers sign a digital completion acknowledgment (even via email) before we invoice really helps. We send them photos of the completed repair and ask them to confirm receipt and approval. Most customers are happy to do this, and it creates undeniable proof of when they accepted the work as complete. This has eliminated almost all disputes about completion timing in my experience.
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