How to Record OEM Contract Manufacturing Revenue
Accounting for medical devices produced for a third-party brand owner under a contract manufacturing agreement, focusing on the transfer of control under ASC 606.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable | Debit | 250,000.00 | - |
| Revenue - OEM Manufacturing | Credit | - | 250,000.00 |
| Cost of Goods Sold | Debit | 165,000.00 | - |
| Finished Goods Inventory | Credit | - | 165,000.00 |
💡 Accountant's Note
Revenue is recognized when the customer obtains control of the medical device, often at the point of shipment (FOB shipping point) or upon customer inspection, depending on the master supply agreement terms.
Practitioner & Systems Framework
💻 ERP Architecture
Ensure the 'Ship-to' and 'Sold-to' entities are correctly mapped in the ERP to distinguish between OEM and direct sales for tax nexus purposes.
⚠️ Audit Flags
Discrepancies between production completion dates and revenue recognition dates; high concentration of revenue from a single OEM partner.
📄 Required Documentation
Master Supply Agreement (MSA), Bill of Lading, and Quality Inspection Release Certificate.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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