WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby When Income Counts They’re here, or almost here! New accounting guidelines issued by the Financial Accounting Standards Board (FASB) offer new rules for determining when a drilling business’s revenue should be considered “income.” In addition to its impact on every operation’s tax bill, its income can affect, among other things, the drilling operation’s ability to borrow money or attract investors. It is also often used as a basis for determining certain employee compensation and benefits. Although it's not unusual that there is a specific time to secure deductions - or to include revenue - on an operation’s financial statements and tax returns, until now, those time frames have been dictated by rules or laws - not the drilling con- tractor’s opinion. Under the guidelines for the new Generally Accepted Accounting Principles (GAAP), most drilling operations and businesses must report the revenue they “expect” to collect for their goods or services. Under the so-called “revenue recognition” principle of accrual accounting, rev- enues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received. With the new standards, a drilling operation will recognize revenue for promised goods and services in an amount which reflects the consideration they expect to be entitled to in exchange for those goods and services. Obviously, if there is any doubt whether payment will be received from a cus- tomer, the seller must recognize an allowance for doubtful accounts for amounts it expects the customer will renege. If there is substantial doubt any payment will be received, the drilling operation or business should not recognize any revenue at all until a payment is actually received. Not too surprisingly, also impacted will be the tax picture - and bills - of many drilling operations. Fortunately, for some accounting method changes, including those required to comply with the new accounting standards, the Internal Revenue Service (IRS) provides an automatic procedure for obtaining its consent for the change. In general, a drilling business uses Form 3115, Application for Change in Accounting Method for an accounting method change. Answering the question: “When is the drilling operation’s revenue considered income?” has been clarified, at least for accountants and the IRS. However, with the effective date when all drilling businesses will be required to report revenue by following hundreds of pages of new accounting guidance fast approaching, seeking the professional help is important for avoiding last-minute panic and locking in potential savings. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com New & Used Bits, HDD Bits & Tools, Drag Bits & Wings, Bolt-On Drag Bits, Reverse Circulation Tools, Hole Openers, Claw Bits, Stabilizers, Subs, Custom Tooling & Welding, Hammer Bits, Drill Collars, Pipe Wipers, and Drill Pipe. Office: (661) 834-4348 Rod Henderson / Eran Henderson 661-201-6259 • 661-330-0790 sales@bitcobits.com www.bitcoinc.us 8 AUGUST 2018 WorldWide Drilling Resource ® Irrigation Scholarships Announced The Idaho Irrigation Equipment Association (IIEA) announced it is awarding $22,000 in scholarships to 34 students for the 2018-2019 school year. The recipients are: Jordan Allender Lauren Anderson Lauren Axness Dallas Baker Eric Ball Cody Barrie Carson Barry Ross Blattner Jenae Chandler Madison Crawford Auguste Curtis Kyle Daniels Chrystal Godfrey Rachel Gross Andrew Gutierrez Jared Holliday Kyle Isham Jeremy Leavitt Noah Mosier Tate Mosier Justin Nesbitt Kristin Nesbitt Kaedy Pardew-Peck Dallin Polson Lexus Rawlings Julia Reese Preston Searle Jessica Schmitz Tyler Seely Nicholas Smith Bailey Storms Finn Townsley Jason Wade Dustin Winston Scholarships ranged from $500 to $1500 per student. Since 1980, the IIEA has awarded 733 scholarships, funded by IIEA members and general funds of the association totaling $445,500. IIEA’s Scholarship Program received the Idaho Governor’s Award for Excellence in Agriculture in the Education/Advocacy category at the 2012 Larry Branen Idaho Ag Summit.