Revenue Recognition for Time and Materials Projects

This topic describes revenue recognition for time and materials projects under different accounting methods.

Note that for time and materials projects, billing amounts and billable costs are specified with each transaction.

Billings and Costs Method

To calculate revenue for projects using the billings and costs accounting method, the program determines:

• The amount to credit the revenue account for the period.

This is the total amount billed for the project to the specified cut-off date or fiscal year and period, or since you last recognized revenue.

• The amount that will be charged to the cost of sales account for the period.

This is the total cost incurred on the project to the specified cut-off date or fiscal year and period, or since you last recognized revenue.

• There is no entry to the work in progress account for gross profit, since revenue and costs are calculated independently.

Completed Project Method

For time and materials projects that use the completed project accounting method, the program does not credit the revenue account or charge the cost of sales account until the project is marked Completed. Until then, all costs are accumulated in the work in progress account, and billings are accumulated in the billings account.

When you change the status of a project to Completed, the next time you run the revenue recognition functions, the program recognizes as revenue the sum of all the billings for the project.

It also charges the total costs incurred to cost of sales and credits the work in progress account to eliminate project-related balances from that account, as follows:

Accrual-Basis Method

For time and material projects that use the accrual-basis accounting method, you do not run the revenue recognition functions to recognize revenue.

For these projects, costs are automatically debited to the cost of sales account when you post cost transactions. For example, when you post an equipment usage transaction, the general ledger entry is:

When you post invoices for a project in Accounts Receivable, the transaction is immediately posted to the revenue account, as follows:

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