31 Estimate Job Profit (Update A9.3)

This chapter contains these topics:

31.1 Estimating Job Profit (Update A9.3)

You perform profit recognition to estimate the profit for a job or a revenue performance obligation (RPO) at any time during the job. The system calculates job profit by creating journal entries to adjust the actual costs and revenue for the job or RPO to what they should be, based on the percentage of completion of the job. The profit estimates can reflect either a net profit or a net loss.

Profit recognition is independent of the billing status of the job or RPO. For example, you can recognize profit for a job or RPO even if you have not billed for all of the work that is complete.

The system calculates estimated profit based on the following criteria:

  • The percent complete is based on either the current cost or the current revenue for the job or RPO.

  • Earned amounts are calculated as the projected final amounts multiplied by the percent complete.

  • Over/under amounts are calculated as the actual amounts minus the earned amounts.

You must determine and enter the percentage of completion for a job or RPO before you can estimate its profit information.

Complete the following tasks:

  • Entering the Percentage of Completion

  • Generating Profit Information

31.1.1 What You Should Know About

Topic Description
Profit recognition thresholds You can set up your system so that it does not calculate the profit for a job or RPO until the percentage of completion is greater than or equal to a certain amount. This amount is called a profit recognition threshold.

The system recognizes profit for accounts with a profit recognition threshold in the following ways:

  • If the percentage of completion is less than the threshold amount, the earned job-to-date profit is recorded as zero.

  • If the percentage of completion is based on cost, the system forces the earned revenue to equal the earned cost. If it is based on revenue, the system forces the earned cost to equal the earned revenue.

  • After the threshold is reached, the deferred profit can be recognized immediately or amortized over the remaining life of the job.

  • The system compares the value in the Threshold processing option with the percent complete of each RPO separately and validates the Recognition Threshold Percent for an RPO, which controls when to start recognizing profit for this RPO.
FASB/IASB Standard If you have a job that is being worked on before the FASB/IASB Revenue Recognition standard goes into effect, you run Profit Recognition at the job level for the ob. If, when the new standard goes into effect, the job is still active and you want to recognize revenue by RPO, you need to identify separate RPOs in this same job and run Profit Recognition at the RPO level instead of at the job level.

Generally, there is a this constraint in place that prevents this, but in the transitory time between standards you may want to change the way you run Profit Recognition.

See Also:

31.2 Entering the Percentage of Completion (Update A9.3)

Navigation

From Job Cost (G51), choose Profit Recognition/Job Close

From Profit Recognition/Job Close (G5122), choose Update Percent Complete

You must determine the percentage of completion for a job or RPO before you can estimate its profit information. You can either manually enter a percentage of completion for the job or RPO, or you can direct the system to calculate it using the actual and projected final amounts.

To enter the percentage of completion

On Update Percent Complete

Figure 31-1 Update Percent Complete screen

Description of Figure 31-1 follows
Description of ''Figure 31-1 Update Percent Complete screen''

  1. Complete the following field to locate the company:

    • Company

  2. Complete the following fields if you are updating the percent complete for an RPO:

    • Subledger Type

    • Subledger Value

  3. Complete the following field for the job:

    • Percent Complete

Field Explanation
Subledger Type Enter P in the Subledger Type field to search on the Revenue Performance Obligation subledger type.
Subledger Value When you enter P in the Subledger Type field, use the Subledger Value field to search on all RPOs for the job or enter a specific RPO from the Revenue Performance Obligation Master table (F5102).
Percent Complete A measurement that identifies the progress being made on an item such as an account, work order, and so on. (It is not always a calculated field and may need to be updated manually.)

Form-specific information

The percent complete entered on the form overrides the percent complete calculated during profit recognition for the job. The calculated percent complete is based on the actual cost and projected final amount. In this case, the projected final amount is equal to the job-to-date actual cost for the job divided by the percent complete on the form.

31.2.1 What You Should Know About

Topic Description
Percentage of completion records The percentage of completion information is stored in the following account, which is created when you set up the job:

  • Job Number. Blank Cost Code. Blank Cost Type

See Also:

31.3 Generating Profit Information (Update A9.3)

Navigation

From Job Cost (G51), choose Profit Recognition/Job Close

From Profit Recognition/Job Close (G5122), choose Build Recognition Data

After you enter the percentage of completion for a job or RPO, run the Build Recognition Data program to estimate its profit information. The system estimates profit information by multiplying the percentage of completion by the projected final costs and revenue.

When you estimate profit information, the system calculates the estimated profit-to-date and projected final profit, revenue, and cost details for the job. You can calculate estimated profit information by period, by quarter-to-date, by year-to-date, and by job-to-date to meet your financial reporting needs.

Profit recognition is independent of the billing status of the job. For example, you can recognize profit for a job even if you have not billed for all of the work that is complete.

The system calculates projected final information in one of the following ways:

  • Directly from the percentage of completion you enter for the job or RPO.

  • Based on the projected amounts you create when you calculate job or RPO progress.

Profit can be recognized at the project, job, or subledger or RPO level. In addition, you can regenerate profit information for a closed period when adjustments are needed.

The Build Recognition Data program calculates:

  • Percentage of completion

  • Earned cost and revenue

  • Over/under amounts

The system generates records in the Profit Recognition table (F5144) and Profit Recognition Account Balance table (F5145) when you run the program in final mode. The system uses the Subledger and Subledger Type fields to store the RPO number in the F5144 and F5145 tables. Subledger type P refers to the RPO number. The system reviews whether the adjustments for revenue, cost, and percent complete were made at the job level or at the RPO level, and accordingly posts profit recognition records to either the accounts at the job level or to the accounts at the RPO level.

The system stores a history version of the information in Profit Recognition History File (F5144) with the same generation date and financial information stored at RPO level.