Previous	Next		Contents	Index	Navigation	Glossary	Library

According to the matching principle required by Generally Accepted Accounting Principles (GAAP), expenses (cost) incurred in earning revenue must be accrued in the same accounting period as the revenue. If you do not follow this matching principle, the financial statement and the reported profitability of the company are affected. If the current period expenses are accrued immediately, but related revenues are accrued in a future period, then the profitability of the company is reduced for the current period. To conform to the matching principle, you must defer expenses until revenue is accrued.

In Oracle Projects, cost distribution and revenue generation are two separate processes. Consequently, it is possible to account for expenses (costs) and revenue in different accounting periods. You must determine your accounting procedures and setup to ensure that you match expenses to revenue.

You must determine if your company uses cost accruals during revenue generation. The answer depends on the revenue accrual methods that your company uses. Some companies recognize revenue in the same period as costs. This type of accounting is typically done with work based or time and materials revenue accrual. For such companies, cost accruals are not needed. Other companies use a method that recognizes revenue in future periods after cost is accrued. For these companies, cost accruals are required.

With cost accruals, you initially account for the costs incurred as an asset in a cost work in process (WIP) account. You determine whether you account raw or burdened cost as the cost WIP. When you accrue revenue, the costs are recognized as expense by using cost accruals.