Revenue recognition

  • 8 minutes

In Project Operations, revenue recognition principles vary based on the selected billing method for a project or portion of the project.

Transactions accounted by using time and material billing method

The revenue recognition principles for the time and material billing method are as follows:

  • Cost and revenue recognition are connected - Transaction cost and unbilled sales are posted by using the Project Operations Integration journal.

  • Project cost and revenue profile determine if unbilled sales transactions are posted to the general ledger - If Accrue revenue is selected, the system uses the WIP sales value and the Accrued revenue sales value accounts during posting. The following table shows an example of this method.

    Transaction type Debit/Credit Amount
    WIP Sales value Debit 100
    Accrued revenue sales value Credit 100

  • Revenue is recognized during invoicing - The system uses the Invoiced revenue account during posting. The following table shows an example of this method.

    Transaction type Debit/Credit Amount
    Customer balance Debit 120
    Sales tax payable Credit 20
    Invoice revenue Credit 100

  • If revenue was accrued when the unbilled sales are posted - The system will reverse the accrued revenue at invoicing. The following table shows an example of this method.

    Transaction type Debit/Credit Amount
    Accrued revenue sales value Debit 100
    WIP Sales value Credit 100

Transactions accounted by using the fixed price billing method

The revenue recognition principles for the fixed price billing method are as follows:

  • Cost and revenue recognition are separate. Transaction cost is posted by using the Project Operations Integration journal. Unbilled sales transactions are not created.
  • Revenue can be recognized during invoicing if the project cost and revenue profile have Principle used for project completion calculations set to No WIP. Only use this method for short term, simple projects.
  • Revenue can be recognized by using fixed price revenue estimates, with either the Completed contract or Percent completion revenue recognition method.