Wednesday, August 26, 2015

Revenue Accruals in Project Accounting

The conversation about revenue recognition in project accounting for Microsoft Dynamics GP often goes like this...

"How do you do revenue recognition?"

"Oh, we don't.  Just hit revenue when we bill the expenses and fees."

"Oh, okay, so no need for revenue recognition?"

"No.  But we need to accrue at month end for unbilled."

Or, sometimes, it devolves in a conversation of how to use the revenue recognition module to handle the accrual.  Which is neither fun, nor simple. Particularly because GP revenue recognition
effectively calculates one of three ways...

1. Based on contract/project/cost category progress (either by cost, or by hours)
2. When the project is complete
3. Over time when dealing with a service fee (based on duration of service fee)

But many folks don't realize that GP Project Accounting has built in functionality to deal with accruing unbilled revenue (and therefore the offset, unbilled AR as well).

In this case, you would use a Time and Materials Project.  But the difference is that you use a When Performed accounting method.  The When Performed account method, generates a credit to Unbilled Project Revenue and debit to Unbilled Accounts Receivable when a cost is posted to the project.  The amounts posted to these accounts are determined based on the budgeted profit type and project amount/percent.  Then when the expenses are billed, the amounts move from unbilled to actual revenue and AR.  At any point, the unbilled AR and unbilled revenue represent your accrual.

Of course, this works great for expenses, but what about fees?  And the need to accrue them?  You can use this same logic, but instead of using a fee - we use a zero cost miscellaneous log.  So you set up the miscellaneous log cost category with no cost, a quantity equal to the total amount of fee (if known), a profit type of billing rate, and a billing rate of $1.  Yes, $1. So then, at month end, you can enter a miscellaneous log with zero cost, where the quantity is equal to the amount of the fee you want to accrue.  It will then calculate the accrued revenue and accrued AR for the GL posting for you.  This is particularly helpful when the accrual of the fee is not predetermined, but rather calculated based on criteria outside of the system (project milestones, etc). 

The neat part of handling the fees as zero cost miscellaneous logs is that it them goes in to the WIP queue for billing at the amount you want to bill.

Christina Phillips is a Microsoft Certified Trainer and Dynamics GP Certified Professional. She is a senior managing consultant with BKD Technologies, providing training, support, and project management services to new and existing Microsoft Dynamics customers. This blog represents her views only, not those of her employer.

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