This chapter contains the topic:
You perform profit recognition to estimate the profit for a job 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 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.
When you perform profit recognition, you can create journal entries to recognize your estimated profit for financial reporting purposes. You do this to adjust actual profit to what it should be, based on the percentage of completion of the job. You can also move costs from work-in-progress (WIP) to your income statement.
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.
You can use profit recognition to:
Record job-to-date revenue and expenses on your income statement
Relieve the WIP amounts from your balance sheet
Record over billing and under billing amounts
Enter adjustments for stored materials and accrued costs
Record provision for projected loss
The first step in profit recognition is to calculate the projected final cost, which is an estimation of what the total job costs and billing amounts when the job is 100% complete and 100% billed. While you can calculate costs at a header account level, it is more accurate to perform a calculation for each cost account in the job.
Next, you determine how much progress has been made on the job. You can determine the job's percent complete using one of two methods:
Percent of Cost
Percent of Revenue
Percent of cost divides actual cost by projected final cost to determine percentage complete. Percent of revenue divides actual revenue by projected final revenue to produce the percentage complete. These calculations indicate under- and over-billing situations and give you an estimate of final profit or loss.
Finally, you run the Build Recognition Data program to create journal entries for financial reporting purposes.
Complete the following tasks:
Estimate job profit
Work with estimated profit
Understand profit recognition journal entries
Work with profit recognition journal entries