Job Revenue Recognition Workspace
Use this workspace to recognize revenue on jobs, one at a time or as a batch, based on the percent complete of the job budget.
You can also enter revenue recognition amounts manually.
You can recognize revenue for both fixed price jobs and time and materials jobs.
To perform revenue recognition on a job, the job must be in Order status and have the Revenue Recognition job parameter Revenue Recognition By Completion Percentage set to Yes.
Use the Calculate Completion % From job attribute to determine whether Maconomy should base the completion percentage of a job on the entered billing price of the job or the costs incurred on the job.
Use the Completion % Budget Type and Fixed Price Budget Type job parameters to determine the budgets that Maconomy uses as the basis for calculations.
The Jobs sub-tab displays information about each job, one line per job. Use selection criteria to choose the jobs that are displayed in the sub-tab. Maconomy saves your selection criteria from session to session. Each time that you open this workspace, Maconomy displays the last selection criteria that you used.
You can have Maconomy perform revenue recognition for one job at a time or all jobs in the sub-tab at one time.
In the Revenue Recognition type job parameter, you can choose whether revenue should be recognized at the job level or at a more detailed level. If you choose the detailed level, you can perform calculations in this workspace but will need to go to the Job Revenue Recognition Details workspace to review detailed information.
Calculation Based on Budgeted Cost Prices
If you have Maconomy calculate the completion percentage of a job based on the budgeted costs of the job, Maconomy compares the budgeted costs with the costs that you have entered for the job in the Job Journal, Expense Sheets, and other similar workspaces. Maconomy uses the formula:
Completion Percentage = (Incurred Costs/Total Budgeted Costs) × 100
By default, the total budgeted costs are based on the latest approved revision of the job budget. However, if you set Revenue Recognize According to Approved Budget job parameter to Yes, Maconomy bases the costs on the latest revision of the budget, whether it is approved or not. Maconomy uses the Fixed Price Budget Type attribute in the Pricing Principle job parameter to determine a job's budget type.
Maconomy uses the completion percentage to calculate the revenue that can be recognized in the G/L module. Maconomy uses the formula:
Amount of Revenue Recognized = Fixed Price × Completion Percentage
When you approve the revenue recognition in this workspace, Maconomy creates a job revenue recognition journal that is ready for posting in the G/L module.
Calculation Based on Budgeted Billing Prices
If you want Maconomy to calculate the completion percentage of a job based on budgeted billing prices, instead of the budgeted cost prices, Maconomy compares the budgeted billing prices with the billing prices you have entered to date for the job. Maconomy uses the formula:
Completion Percentage = (Registered Billing Price/Total Budgeted Billing Price) × 100
Then Maconomy uses the completion percentage to calculate revenue in the same way as it does when you base the completion percentage on cost prices:
Amount of Revenue Recognized = Fixed Price × Completion Percentage
Calculation of Fixed Price
Maconomy can calculate revenue for both fixed-price jobs and time and material jobs. The fixed price of these jobs is determined by either:
- The approved quote price of the job, or
- The total budgeted billing price of the latest approved revision of the budget that is assigned to the job.
Use the Pricing Principle job parameter type to specify the fixed-price basis of a job.
Revenue Adjustment Entry
When Maconomy calculates revenue, it always calculates the revenue to be recognized at the present point in time. If revenue recognition was performed for the job on previous occasions, Maconomy creates a revenue adjustment entry for the activity that adjusts the previous revenue recognition amount to the correct current amount.
The adjustment is performed individually for main jobs and sub-jobs, if any. This is also the case if you specify an allocation percentage for a job in the Distribute to Subjobs workspace.
Example
Assume you have a fixed price job for which:
- Revenue recognition uses a completion percentage based on budgeted cost prices.
- The fixed price of the job is based on a job budget.
- Capitalization is at the billing price.
- The Create Invoice Upon Job Closing job parameter attribute is set to Yes.
The job's budget has a total billing price of $60,000 and a total cost price of $40,000. This means that the fixed-price basis is $60,000, and the cost basis is $40,000.
You make entries to the job through the job journal, time sheets, and so on, that are posted to the work-in-progress account and the open billing price. The total work entered is equal to a billing price of $36,000 and a total cost of $20,000. Because you selected capitalization at billing price, Maconomy automatically revenue-recognizes a revenue of $36,000.
Now you want to recognize revenue based on the percentage completion method. When Maconomy calculates revenue recognition in this workspace, it states that the job is 50% complete, because the entered cost is 50% or the budgeted cost. Maconomy therefore suggests that you recognize 50% of the fixed price, or $30,000, as revenue. When you approve the revenue recognition, Maconomy creates a Job Revenue Recognition journal that is ready for posting. The journal contains entries that reduce the amount of $36,000 already recognized to $30,000 by crediting WIP Account, Adjustment and debiting Open Billing Price, Adjustment by $6,000. Maconomy also creates a job entry that has an open billing price and a billing price up/down of -$6,000.
Then you enter $25,000 more costs on the job, with a billing price of $34,000. This results in revenue recognition of an additional $34,000, because you selected capitalization at billing price. You have now entered total expenses of $45,000 and a billing price of $70,000.
Maconomy now considers the job completed; the completion percentage is 100. You can recognize 100% of the fixed price as revenue. The fixed price was $60,000, and $64,000 had already been recognized as revenue. If you approve Maconomy's suggestion to recognize $60,000 of revenue on the job, Maconomy creates a journal which, when posted, reduces the revenue recognition by $4,000 (the total billing price, less the fixed price), so that the job's revenue becomes $60,000.
Now you make a change to the job budget that changes the fixed price to $80,000. When a new calculation of revenue is performed, Maconomy still considers the job 100% completed, because the cost price basis remains unchanged. But because you changed the fixed price basis to $80,000, Maconomy recognizes another $20,000 in revenue, which is the balance between the previous and the present fixed price, and the job is revalued accordingly.
Time and Materials Jobs
Because revenue adjustment entries should not adjust the invoicing basis of a time and material job, Maconomy closes any revenue adjustment entries that you create on a time and material job immediately after they are created. Hence, they do not have any effect on the invoice basis of the job. If changes on the job result in adjustments being reversed, the automatic creation of reversing journals ensures that the relevant entries are adjusted in the same way as for fixed-price jobs.
Limits on Recognized Revenue
If you want to limit the revenue recognized on one or more jobs, you can specify a maximum completion percentage in the Compl. % Limit field on the lines in the Jobs sub-tab. If you select the Limit Revenue field and specify a completion percentage limit for a given job, Maconomy will not recognize more than this percentage of the fixed price of the job as revenue.
On a fixed price job, you cannot recognize more than 100% of the fixed price as revenue. However, because the revenue to be recognized on a time and material job is not necessarily limited to the "fixed price" of the job, the completion percentage can be larger than 100%, meaning that more than the "fixed price" of the job can be recognized as revenue.
Maconomy determines the default value of the Limit Revenue and Compl. % Limit fields in the Jobs sub-tab from the corresponding attributes that you specified in the Revenue Recognition job parameter type assigned to the jobs. However, because the revenue on a fixed-price job is always limited to a maximum of 100%, you can only change the value of the Limit Revenue field for time and material jobs.
Manual Revenue Recognition
You can also perform manual revenue recognition in this workspace. For example, you can recognize 75% of the billing price as revenue, even though the job is only considered 50% completed.
However, manual adjustments to revenue that is already recognized on a job that uses detailed revenue recognition can only be performed in the Job Revenue Recognition Details workspace.
Potential Issues
Issues can arise from the fact that you can use the same budget type to determine both the fixed price of the job and the completion percentage used for calculating revenue recognition on the job.
For example, if Maconomy determines the fixed price of a job by a budget that specifies a total billing price of 500 hours at $100 an hour, the total billing price of the job is $50,000. As work progresses on the job, it turns out that a total of 600 hours are needed to complete the job, but this change should not affect the fixed price of the job, which should remain at $50,000. But when Maconomy calculates the completion percentage, the estimated total number of hours is 600, resulting in a total billing price of $60,000 .
This illustrates that if the fixed-price budget is identical to the budget used to calculate the completion percentage, you might not be able to calculate both the fixed price of the job and the assigned completion percentage correctly.
You can solve this problem by separating the fixed-price budget from the ongoing job budget, enabling you to have one job budget type determine the fixed price of a job, while another job budget type served as the basis for calculating the completion percentage.
You can specify the budget type to be used for calculating the completion percentage in the Completion % Budget Type job parameter attribute in the Revenue Recognition job parameter. If you do not specify a budget type there, Maconomy applies the budget type specified in the Fixed Price Budget Type attribute in the Pricing Principle job parameter when determining both the fixed price of the job and the completion percentage.
To continue our example, assume that 250 hours have now been spent on the job, resulting in an entered billing price of $25,000. When Maconomy calculates the completion percentage for the job, the ongoing budget, with a total billing price of $60,000 is considered. The completion percentage is $25,000 /$60,000 = 41.7%. The fixed price, however, is not $60,000, but the $50,000 specified by the fixed-price budget. Because you separated the fixed-price budget from the ongoing job budget, the amount to recognize as revenue is 41.7% x $50,000 = $20,850.