Revenue Recognition in a Multicurrency System

Note that in a multicurrency system, job-related Accounts Receivable transactions are posted to the billings account in both the customer's currency and in the functional currency. Also, Accounts Payable transactions are posted to the work in progress account in both the vendor's currency and in the functional currency.

For customers who do not use your functional currency, Project and Job Costing:

• Debits the billings account in each currency (using the sum of the revenue amounts for each currency).

• Credits the work in progress account for the sum of the cost of sales amounts in each currency.

• Credits (or debits) the work in progress account with the profit (or loss) amount in the functional currency.

• Credits or debits any rounding differences (due to exchange) to the billings account.

Percentage Complete Methods

For the total cost percentage complete, labor hours percentage complete, and category percentage complete accounting methods, the program calculates:

1. The total estimated project revenue in functional currency.

For the category percentage complete accounting method, the estimated revenue for each category is used.

2. The total estimated costs in functional currency.

3. The costs incurred to cut-off in functional currency.

4. The gross profit amount in functional currency.

5. The actual revenue in functional currency, based on the percentage complete.

Using the current exchange rate, the program converts the revenue amount in functional currency to the customer's currency. The program then generates general ledger entries to:

• Credit revenue in customer and functional currencies.

• Debit work in progress in functional currency only.

• Debit cost of sales in functional currency only.

Project Percentage Complete

For the project percentage complete accounting method, the program calculates:

1. The percentage of the project's fixed price to recognize in the source currency, using the percentage complete for the project.

2. The revenue amount in functional currency, using the current exchange rate.

3. The percentage of costs to match to revenue, in functional currency.

4. The gross profit amount in functional currency (the amount from step 2 less the amount from step 3).

The program then generates general ledger entries to:

• Credit revenue in functional and customer currencies.

• Debit work in progress in functional currency only.

• Debit cost of sales in functional currency only.

Completed Project and Billings and Costs

For the completed project and the billings and costs accounting methods, the program generates entries for the billings account in both source and functional currency using various exchange rates, corresponding to the rates used on customer invoices.

During revenue recognition, Project and Job Costing sums the amounts in each currency to determine a single exchange rate for the revenue recognition transaction.

Similarly, transactions entered through Accounts Payable to the work in progress account can have varying exchange rates. When you recognize revenue, the program derives an exchange rate for the work in progress account in the same manner.

Note that the program generates entries to the cost of sales account in functional currency only.

 

 

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