Revenue Recognition Work In Progress Adjustments

• You will need specific GL accounts for this process. If these or comparable accounts are already set up in your General Ledger then you may not need to create new ones. The examples below are very common examples of the way these are set up.
  

• To create these accounts navigate to Admin - General Ledger
  
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• This first account is used for adjusting your Revenue and thus it is a Sales type account.
  
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• An account will also be needed to track Costs In Excess Of Billings. Costs In Excess Of Billings (CIE) contractually speaking would be where you have performed a contract obligation (i.e. purchased materials specifically for the job) but have not yet billed for it. This would mean the revenue for that obligation is due even though you haven't invoiced it yet, so this would be an Asset.
  
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• Additionally there needs to be an account to track Billings In Excess Of Costs (BIE). Contractually speaking you have declared Sales Revenue here but you have not yet performed the contractual obligation therefore this account is a liability account.
  
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Journal Entry Process

1. You will first need to use a WIP report to determine your Costs In Excess Of Billings and your Billings In Excess Of Costs.
   

1. The examples below were produced using the Enterprise Job Costs WIP - As Of Date module.
   

2. Example 1
   

1. In this example from the WIP report we can see that the Billings In Excess Of Costs is a higher overall value than the Costs In Excess Of Billings. In simple terms this means that at this point invoices were being created somewhat ahead of costs being incurred on projects. The 3rd value simply labeled "Excess" is the net amount from the CIE and the BIE.
   
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3. When making the corresponding Journal Entry for this period the Costs In Excess Of Billings will be entered as a Debit to the respective ledger account. The Billings In Excess will be entered as a credit to the respective ledger account. In this scenario since the Billings In Excess was the higher value then the entry to the Revenue Recognition Adjustment account would be debit and would reduce the Revenue/Sales total.
   
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3. Example 2
   

1. Now in this contrasting example there was significantly more CIE than BIE. That means that Sales (Revenue) numbers are under stated right now based on contractual performance (how much you have paid for) and so the adjustment would increase Revenue (Sales).
   
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4. In the scenario's above these entries would be reversed out before making the adjustment for following period. There would be additional considerations for entries made at the end of the fiscal period.