This appendix contains these topics:
Section C.4, "Revenue Recognition and Invoicing without Reconciliation,"
Section C.5, "Revenue Recognition and Invoicing with Reconciliation,"
Section C.8, "Invoicing and Revenue Recognition without Reconciliation,"
Section C.9, "Invoicing and Revenue Recognition with Reconciliation,"
Accounting for the billing cycle is controlled by the account derivation rules. The system uses the rules to:
Identify and process workfile transactions
Direct the amount of the resulting journal entries to specific accounts
You can define two types of account derivation rules:
Topic | Description |
---|---|
Base rules | Base rules indicate which accounts you want the system to use when it creates journal entries for the billing and revenue recognition processes. The system uses base rules to create journals for the total of the base and component amounts. |
Reallocation rules | Reallocation rules are used to move amounts from one account to another. A reallocation rule consists of two or more offsetting journal entries that must balance. The first offset journal entry represents the reduction to the base account. The second journal entry represents the increase to the new account. |
The Journal Generation Control field in the system constants for Contract Billing controls the types of account derivation rules that you define for the following processes:
Billing (Invoicing) only - Revenue reconciliation is not applicable.
Revenue recognition only - Revenue reconciliation is not applicable.
Revenue recognition and billing
Without reconciliation of the unbilled receivable account to the billed revenue and receivable accounts. The unbilled receivable account does not equal zero. Unbilled receivable variances are allowed.
With reconciliation of the unbilled revenue and unbilled receivable amounts to the billed revenue and receivable amounts. The unbilled revenue and receivable amounts must equal zero after you generate the invoice. Unbilled variances are not allowed.
There are three types of Account Derivation Tables that the system can use to create revenue recognition and invoice journal entries. The type of journal processing that you select in the system constants controls whether the system is restricted from using a specific table type. Each applicable type must contain a base rule that defines how the system creates journal entries.
The following table shows the relationship between the Journal Generation Control field in the system constants and the Table Type field for the account derivation rules.
If you are processing | Set Journal Generation Control in system constants as: | Create Information for Account Derivation Table Types | Restricted Account Derivation Table Types |
---|---|---|---|
Invoices only | 1 | 3 | 1 and 2 |
Revenue Recognition only | 2 | 1 and 3 | 2 |
Invoices and Revenue Recognition without Revenue Reconciliation | 3 | 1 and 3 | 2 |
Invoices and Revenue Recognition with Revenue Reconciliation | 4 | 1, 2, and 3 | N/A |
Note:
The system uses the RC Automatic Accounting Instruction (AAI) for accounts receivable and retainage when you generate invoices. The RC AAI does not apply if you are processing revenue recognition only.The following table shows how the system uses the base rules to create the accounting journal entries. The amount basis results from either the invoicing or revenue recognition process.
Journal Generation Control | Table Types | Amount Basis | "+" Indicates | System Created Entries |
---|---|---|---|---|
1 Invoices | 3 | Invoice | Credit entry | Actual Revenue |
RC AAI | Invoice | Debit entry | Accounts Receivable | |
2 Revenue Recognition | 1 | Revenue Recognition | Credit Entry | Actual Revenue |
3 | Revenue Recognition | Debit Entry | Unbilled Accounts Receivable | |
3 Revenue Recognition without Reconciliation | 1 | Revenue Recognition | Credit Entry | Actual Revenue |
3 | Revenue Recognition | Debit Entry | Unbilled Accounts Receivable | |
3 | Invoice | Credit Entry | Unbilled Accounts Receivable | |
RC AAI | Invoice | Debit Entry | Accounts Receivable | |
4 Revenue Recognition with Reconciliation | 1 | Revenue Recognition | Credit Entry | Unbilled Revenue |
3 | Revenue Recognition | Debit Entry | Unbilled Accounts Receivable | |
2 | Invoice | Credit Entry | Actual Revenue | |
3 | Invoice | Debit Entry | Unbilled Revenue | |
3 | Invoice | Credit Entry | Unbilled Accounts Receivable | |
RC AAIs | Invoice | Debit Entry | Accounts Receivable |
When you process invoicing only:
The journal generation control is 1
Revenue recognition does not apply
The system calculates the same amount for actual revenue and accounts receivable
The system calculates the amounts for revenue and accounts receivable simultaneously
The RC AAI designates the accounts for accounts receivable and retainage
For example, if the cost for a workfile transaction is 100.00 and the markup is 15 percent, the amounts for the invoice and accounts receivable are 115.00. The system creates the following journal entry:
Account | Entry |
---|---|
Accounts receivable | 115.00 |
Actual revenue | (115.00) |
The "T" account posting in the general ledger is:
Accounts Receivable | Accounts Receivable | Actual Revenue | Actual Revenue | |
---|---|---|---|---|
Debit | Credit | Debit | Credit | |
115 | 115 |
The RC AAI directs the system to the accounts receivable and retainage account information. Account Derivation Table Type 3 directs the system to the base rules for the actual revenue account.
When you process revenue recognition only:
The journal generation control is 2
Invoicing does not apply
The system calculates the same amount for actual revenue and unbilled accounts receivable
The system calculates the amounts for revenue and unbilled accounts receivable simultaneously
The RC AAI does not apply because no invoice exists
For example, if the cost for a workfile transaction is 100.00 and the markup is 25 percent, the amounts for the unbilled accounts receivable and actual revenue are 125.00. The system creates the following journal entry:
Account | Amount |
---|---|
Unbilled accounts receivable | 125.00 |
Actual revenue | (125.00) |
The "T" account posting in the general ledger is:
Unbilled accounts receivable | Unbilled accounts receivable | Actual Revenue | Actual Revenue | |
---|---|---|---|---|
Debit | Credit | Debit | Credit | |
125.00 | 125.00 |
The system uses two different table types to direct the system to the base rules for the journal entries:
Table type 1 directs the system to the rules for actual revenue
Table type 3 directs the system to the rules for unbilled accounts receivable
At times, a company might find it advantageous to allow a variance between invoices and the recognized revenue. For example, if the company recognizes revenue monthly, but generates invoices only after the work is completed, the revenue, unbilled accounts receivable and invoice accounts will:
Contain variances before the invoice journal is created
Reconcile over time once all invoice journals for the completed project are generated and posted to the account ledger
When you process revenue recognition and generate invoices without reconciliation:
The journal generation control is 3
Invoicing does not apply when you process revenue recognition
The system calculates the same amount for actual revenue and unbilled accounts receivable
The system calculates the amounts for revenue and unbilled accounts receivable simultaneously
When the work is complete and you process invoices, the system:
Calculates the same amount for unbilled accounts receivable and accounts receivable.
Calculates the amounts for unbilled accounts receivable and accounts receivable simultaneously.
Uses the RC AAI to designate the accounts receivable and retainage accounts
For example, your company began a project on June 15 and completed the project 90 days later. The total cost for the project was 1,000.00. Every week, the company generates the workfile transactions with a 15 percent markup added to the cost. Your company processes revenue recognition at the end of each month, beginning in June. They process the invoice on September 25.
The system creates the following journal entries for the project costs:
Date | Description | Amount | Amount |
---|---|---|---|
06/28/98 | Project cost | 350.00 | |
Accounts payable | (350.00) | ||
07/25/98 | Project cost | 500.00 | |
Accounts payable | (500.00) | ||
09/10/98 | Project cost | 150.00 | |
Accounts payable | (150.00) |
The "T" account postings and balances in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/28/98 | 350.00 | 350.00 | |
07/25/98 | 500.00 | 850.00 | |
08/31/98 | 850.00 | ||
09/10/98 | 150.00 | 1,000.0() |
The system uses two different table types to direct the system to the base rules for the journal entries:
Table type 1 directs the system to the rules for actual revenue
Table type 3 directs the system to the rules for unbilled accounts receivable
On June 30, your company processes revenue recognition. The workfile contains a new transaction for 402.50. The system uses the following calculation for the workfile transaction:
350.00 cost X 15 percent markup = 52.50
350.00 cost + 52.50 = 402.50
The system creates the following journal entry for revenue recognition:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Unbilled accounts receivable | 402.50 | |
Actual revenue | (402.50) |
The "T" account postings and balances for June in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 |
Account Derivation Table Type 3 directs the system to unbilled accounts receivable base rules. It creates a debit journal entry for the revenue recognition amount.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | (402.50) |
Accounts Derivation Table Type 1 directs the system to the base rules for actual revenue. It creates a credit journal entry for the revenue recognition amount.
On July 31, your company processes revenue recognition. The workfile contains a new transaction for 575.00. The system uses the following calculation for the workfile transaction:
500.00 cost X 15 percent markup = 75.00
500.00 cost + 75.00 = 575.00
The system creates the following journal entry for revenue recognition:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Unbilled accounts receivable | 575.00 | |
Actual revenue | (575.00) |
The "T" account postings and balances for July in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/31/98 | 575.00 | 977.50 |
Account Derivation Table Type 3 directs the system to unbilled accounts receivable base rules. It creates a debit journal entry for the revenue recognition amount.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | (402.50) | |
07/31/98 | 575.00 | (977.50) |
Account Derivation Table Type 1 directs the system to the base rules for actual revenue. It creates a credit journal entry for the revenue recognition amount.
In August, your company does not have new costs for the project. No new workfile transactions exist for the project. The balances for August in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/31/98 | 575.00 | 977.50 | |
08/31/98 | 977.50 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | (402.50) | |
07/31/98 | 575.00 | (977.50) | |
08/31/98 | (977.50) |
On September 25, your company processes the invoice. The workfile contains a new transaction for 172.50. The system uses the following calculation for the workfile transaction:
150.00 cost X 15 percent markup = 22.50
150.00 cost + 22.50 = 172.50
The system creates the following journal entry for the invoice:
Date | Account | Debit | Credit |
---|---|---|---|
09/25/98 | Accounts receivable | 1150.00 | |
Actual revenue | (1150.00) |
The workfile transactions for June, July, and September have not been invoiced up to now. The system sums the invoice amounts for the three months to create an invoice amount of 1,150.00.
The "T" account postings and balances for September in the general ledger for the invoice journals are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/31/98 | 575.00 | 977.50 | |
08/31/98 | 977.50 | ||
09/25/98 | 1,150.00 | (172.50) |
The system uses the Account Derivation Table Type 3 to determine the base rules for unbilled accounts receivable. When it creates the journal entry, it credits the invoice amount to unbilled accounts receivable. Unbilled Accounts Receivable contains an unreconciled balance of 172.50.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 0 | ||
07/31/98 | 0 | ||
08/31/98 | 0 | ||
09/25/98 | 1,150.00 | 1,150.00 |
Accounts receivable contains the actual invoiced amount. The system uses the RC AAI to create the journal entry for Accounts Receivable.
When you generate the journals for invoices, the system also generates adjustment journals for revenue recognition. The system uses the workfile transactions in the invoice batch to determine if it must create any applicable adjustments to the prior journal entries for revenue recognition. Adjustments can occur for various reasons, such as:
You have not included invoiced workfile transactions for the current batch in a prior revenue journal
The information for the workfile transaction, such as the object account, cost amount, or eligibility code, has changed from when you originally included it in a revenue batch
The invoice was processed prior to the end of the month. Revenue has not been calculated for the 172.50 workfile transaction that was included in the invoiced amount. The system created the following adjustment journal entry for revenue recognition:
Date | Account | Debit | Credit |
---|---|---|---|
09/25/98 | Unbilled accounts receivable | 172.50 | |
Actual revenue | (172.50) |
After you post the adjustment, the amount for actual revenue equals the amount for accounts receivable, and the variance for unbilled accounts receivable self-corrects. The "T" account postings and balances for September in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | (402.50) | |
07/31/98 | 575.00 | (977.50) | |
08/31/98 | (977.50) | ||
08/31/98 | 172.50 | (1,150.00) |
Account Derivation Table Type 1 directs the system to the base rules for actual revenue. It creates a credit journal entry for the revenue recognition amount.
The "T" account postings and balances for September in the general ledger for the invoice journals are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/31/98 | 575.00 | 977.50 | |
08/31/98 | 977.50 | ||
09/25/98 | 1,150.00 | (172.50) | |
09/25/98 | 172.50 | 0 |
Account Derivation Table Type 3 directs the system to the base rules for unbilled accounts receivable. It creates a debit journal entry for the revenue recognition amount.
Note:
Generally, during each month, a company processes multiple invoice batches. Depending upon company policy, revenue recognition might be processed more than once a month. Timing differences always occur between revenue recognition and invoice processing. Therefore, the account for unbilled accounts receivable would contain a variance amount and would not zero out each month.Many companies do not want a variance between invoice and recognized revenue amounts. In this case, the revenue and receivable amounts are unbilled estimates. The actual revenue and receivable amounts always equal the invoiced amounts. When a company processes invoices, all the estimates are reconciled.
For example, if the company recognizes revenue monthly, but generates invoices only after the work is completed, the estimated revenue and receivable amounts are reconciled when the actual revenue and receivable amounts for the invoice are processed.
When you process invoices with revenue reconciliation, the journal generation control is 4.
When you process revenue recognition:
Invoicing does not apply when you process revenue recognition at the end of each month
The system calculates the same amount for unbilled revenue and unbilled accounts receivable
The system calculates the amounts for unbilled revenue and unbilled accounts receivable simultaneously
The system uses two different table types for the account derivation rules to create the journal entries:
Table type 1 directs the system to the rules for unbilled revenue
Table type 3 directs the system to the rules for unbilled accounts receivable
When the work is complete at a later time, and you process invoices:
The system calculates the same amount for unbilled accounts receivable and accounts receivable
The system calculates the amounts for unbilled accounts receivable and accounts receivable simultaneously
The RC AAI designates the A/R account
The system uses the account derivation rules and AAIs to create the journal entries. Table type 3 directs:
The system to the rules for unbilled accounts receivable
The RC AAI to the account information for accounts receivable
The system also:
Processes the revenue reconciliation journals
Reconciles the unbilled revenue and receivable amounts
Creates the actual income amounts
Uses three different table types for the account derivation rules to create journal entries:
Type 1 to reconcile the unbilled revenue amounts
Type 2 to credit the actual revenue amount
Type 3 to reconcile the unbilled accounts receivable amounts
For example, your company began a project on June 15 and completed the project 30 days later. The total cost for the project was 1,000.00. Every week, the company generates the workfile transactions with a 15 percent markup added to the cost. Your company processes revenue recognition at the end of each month, beginning in June. They process the invoice on July 25. The system creates the following journal entries for the project costs:
Date | Description | Amount | Amount |
---|---|---|---|
06/28/98 | Project cost | 350.00 | |
Accounts payable | (350.00) | ||
07/25/98 | Project cost | 650.00 | |
Accounts payable | (650.00) |
The "T" account postings and balances for the cost in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/28/98 | 350.00 | 350.00 | |
07/25/98 | 650.00 | 1,000.0() |
On June 30, your company processes revenue recognition. The workfile contains a new transaction for 402.50. The system uses the following calculation for the workfile transaction:
350.00 cost X 15 percent markup = 52.50
350.00 cost + 52.50 = 402.50
The system creates the following journal entry for revenue recognition for the unbilled revenue and unbilled accounts receivable:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Unbilled accounts receivable | 402.50 | |
Actual revenue | (402.50) |
The "T" account postings and balances for June in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 |
Account Derivation Table Type 3 directs the system to unbilled accounts receivable base rules. It creates a debit journal entry for the revenue recognition amount.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | (402.50) |
Account Derivation Table Type 1 directs the system to unbilled revenue base rules. It creates a credit journal entry for the revenue recognition amount.
On July 25, your company processes the invoice. The workfile contains a new transaction for 747.50. The system uses the following calculation for the workfile transaction:
650.00 cost X 15 percent markup = 97.50
650.00 cost + 97.50 = 747.50
The system creates the following journal entry for the June and July workfile transactions by adding the 402.50 and 747.50 that apply to the invoice:
Date | Account | Debit | Credit |
---|---|---|---|
07/25/98 | Accounts receivable | 1,150.00 | |
Unbilled accounts receivable | (1,150.00) |
The "T" account postings and balances for July in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/25/98 | 1,150.00 | (747.50) |
Account Derivation Table Type 3 directs the system to unbilled accounts receivable base rules. It creates a credit journal entry for the invoice amount.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 0 | ||
07/25/98 | 1,150.00 | 1,150.00 |
The RC AAI directs the system to the accounts receivable and retainage account information. It uses the invoice amount to create the debit for the journal entry.
Unbilled accounts receivable and untilled revenue have not been calculated for the 747.50 workfile transaction that was included in the invoiced amount. The system creates the following journal entry for reconciliation of the revenue recognition amounts:
Date | Account | Debit | Credit |
---|---|---|---|
07/25/98 | Unbilled accounts receivable | 747.50 | |
Unbilled revenue | (747.50) |
The account postings and the balances in the general ledger for the journals are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/25/98 | 1,150.00 | (747.50) | |
07/25/98 | 747.50 | 0 |
Account Derivation Table Type 3 directs the system to the base rules for unbilled accounts receivable. It creates a debit journal entry for the revenue recognition amount.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/25/98 | 747.50 | (1,150.00) |
Account Derivation Table Type 1 directs the system to the base rules for unbilled revenue. It creates a credit journal entry for the revenue recognition amount.
Revenue Reconciliation of the Revenue Amounts
The system uses Unbilled Accounts Receivable as the "clearing" account for the Revenue Recognition and INvoice amounts during the reconciliation of revenue. When the revenue and invoice amounts are the same, it appears as if the system has created unnecessary, duplicate entries. This occurs because the system uses gross amounts rather than net amounts to reconcile the unbilled accounts.
The system creates the following journal entries for the reconciliation of the revenue recognition amounts:
Date | Account | Debit | Credit |
---|---|---|---|
07/25/98 | Unbilled revenue | 1,150.00 | |
Unbilled accounts receivable | (1,150.00) |
The account postings and the balances in the general ledger for the journals are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | (402.50) | |
07/25/98 | 747.50 | (1,150.00) | |
07/25/98 | 1,150.00 | 0 |
Account Derivation Table Type 1 directs the system to the base rules for unbilled revenue. It creates a debit journal entry for the revenue recognition amount.
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/25/98 | 1,150.00 | (747.50) | |
07/25/98 | 747.50 | 0 | |
07/25/98 | 1,150.00 | (1,150.00) |
Account Derivation Table Type 3 directs the system to the base rules for unbilled accounts receivable. It creates a credit journal entry for the revenue recognition amount.
Revenue Reconciliation of the Invoice Amounts
The system also creates the following journal entries for the revenue reconciliation by using the invoice amount for actual revenue:
Date | Account | Debit | Credit |
---|---|---|---|
07/25/98 | Unbilled accounts receivable | 1,150.00 | |
Revenue | (1,150.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 402.50 | 402.50 | |
07/25/98 | 1,150.00 | (747.50) | |
07/25/98 | 747.50 | 0 | |
07/25/98 | 1,150.00 | (1,150.00) | |
07/25/98 | 1,150.00 | 0 |
Account Derivation Table Type 3 directs the system to the base rules for unbilled accounts receivable. It creates a debit journal entry for the invoice amount.
Date | Debit | Credit | Balance |
---|---|---|---|
07/25/98 | 1,150.00 | (1,150.00) |
Account Derivation Table Type 2 directs the system to the base rules for actual revenue. It creates a credit journal entry for the invoice amount.
After all the journals have been posted, the unbilled accounts are reconciled. Only the actual revenue and accounts receivable accounts contain balances for the invoiced workfile transactions.
Companies define reallocation rules so that the system can redirect amounts. The amounts can include:
Taxes
Invoices
Costs
To use reallocation rules, you must first define a base rule. Then, you can define reallocation rules to redirect up to 100% of an amounts from and to one or more alternate accounts.
For example, your company might charge a "trip" fee whenever they send a service person to the equipment location to perform repairs. If your company wants to direct trip fees to a separate business unit from repair fees, you can define a reallocation rule to redirect the trip fee.
Reallocation rules use any combination of the following files in the Account Derivation Table:
Table Amount Basis
Split Amount Basis
Positive or Negative
Component Code
Condition Code
Percent to Include
Reverse Entry Control
When you define reallocation rules for table amounts, the system uses the billing detail transaction in the Billing Workfile (F4812). Table amounts can be defined as:
Category | Description |
---|---|
Base | Either the revenue or invoice amount, depending on the type of processing and the stage of journal processing |
Cost | Actual amount of cost for workfile transaction |
Invoice | Actual amount invoiced for workfile transaction |
Revenue | Actual amount for revenue recognition for workfile transaction |
Margin | Actual amount for revenue less the actual amount for cost |
Net Margin | Actual amount for invoice less the actual amount for cost |
Note:
Depending on the value for the system constant for independent revenue and invoice amounts, and the type of markup tables, the revenue and invoice amounts are either the same or can differ. The Margin and the Net Margin amounts might not differ.The Positive or Negative (+/-) field directs the system to increase or decrease the amount for the resulting account. Whether an account is increased or decreased depends on the type of journal processing and the stage of journal processing. For example, a + can increase the unbilled accounts receivable account during revenue recognition, and decrease the unbilled accounts receivable account during invoicing.
The Reverse Entry Control (REC) field is used to prevent the system from creating a reversing entry for rules on the Account Derivation Table. You can use this field with any entry other than the Base Entry rule for the table.
The Split Amount Basis field is related to the table amounts in the Amount Basis fields. When the Split Amount Basis field is blank, the reallocation can be used with the amounts for Cost, Margin, or Net Margin. (Taxable amounts and the tax amount cannot be split apart from the Cost, Margin, or Net Margin.) Other split amounts can be based on:
B - Invoice amount plus tax or revenue amount
A - Taxable invoice amount
T - Tax amount
The system can execute reallocation rules depending on different circumstances, the system might execute a reallocation rule when there is a component name in the component field. In this case, a component amount is calculated for the named component code and the amount is attached to the workfile transaction.
Executing rules can also depend on the results of a conditional test. The condition code directs the system to the test the system must perform. Based on the results of the test, the system determines whether to execute the reallocation rule.
Companies can determine the need for reallocation rules by analyzing the account journal entries that are required when they post transactions that are processed by the Service and Contract Billing systems.
A company creates an invoice for 1,200.00. The original cost per unit is 10.00 for 100 units. The cost of each unit is recorded in the Work in Process account. After the units are invoiced, the cost is moved from the Work in Process account to the Cost of Goods Sold account. Each unit is sold for 12.00.
The journal entries are:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Work in Process | 1,000.00 | |
Accounts Payable | (1,000.00) | ||
07/31/98 | Accounts Receivable | 1,200.00 | |
Sales Revenue | (1,200.00) | ||
07/31/98 | Cost of Goods Sold | 1,000.00 | |
Work in Process | (1,000.00) |
The Account Derivation Table rules for Table Type 3 - Acutal Revenue first direct the 1,200.00 invoice amount to the Sales Revenue account. The system uses the AAIs to create the Accounts Receivable portion of the journal entry. Then, the Work in Process account is reduced and the Cost of Goods Sold is increased by the cost amount.
The account postings and balances for June in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 1,000.00 | 1,000.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 1,000.00 | (1,000.00) |
The account postings and balances for July in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,200.00 | 1,200.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,200.00 | (1,200.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 1,000.00 | 1,000.00 | |
07/31/98 | 1,000.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,000.00 | 1,000.00 |
Note:
In the example, the Journal Generation system constant is set to 1 because the company is creating invoices only without revenue recognition. Account Derivation Table Type 3 is the only table needed to create the revenue and reallocation journal entries.You set up the Account Derivation Table rules for invoicing only as follows:
ACCOUNT DERIVATION TABLE TYPE 3
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for revenue amount from the invoice | B (Base) | B (Base) | + creates a credit to the Revenue account |
Remove cost from the Work in Process account | C (Cost) | + creates a credit to the Work in Process account | |
Reallocate cost to Cost of Goods Sold account | C (Cost) | - creates a debit to Cost of Goods Sold account |
The RC AAI directs the system to the account information associated with the debit to Accounts Receivable.
Caution:
To determine the correct +/- entry, you must analyze the type of account and the normal type of balance within the account. For example, the Work in Process account is usually a balance sheet account with a debit (+) balance. If you use a + on Table Type 3 when the Journal Generation is set to only create invoices, the system automatically creates a credit (-) entry to the resulting account.A company recognizes revenue for 1,200.00. The original cost per unit is 10.00 for 100 units. The cost of each unit is recorded in the Work in Process account. After the revenue for the units is recognized, the cost is moved from the Work in Process account to the Cost of Goods Sold account. The revenue for each unit is recognized as 12.00 per unit.
The journal entries are:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Work in Process | 1,000.00 | |
Accounts Payable | (1,000.00) | ||
07/31/98 | Inter-Company Receivable | 1,200.00 | |
Reimbursed Expenses | (1,200.00) | ||
07/31/98 | Cost of Goods Sold | 1,000.00 | |
Work in Process | (1,000.00) |
The Account Derivation Table rules for Table Type 1 - Actual Revenue first direct the 1,200.00 revenue amount to the Reimbursed Expense account. The Account Derivation Table rules for Table Type 3 - Unbilled Receivables, direct the 1,2000.00 reimbursable amount to the Inter-Company Receivable account. Then, the Work in Process account is reduced and the Cost of Goods Sold is increased by the cost amount.
The account postings and balances for June in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 1,000.00 | 1,000.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 1,000.00 | (1,000.00) |
The account postings and balances for July in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,200.00 | 1,200.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,200.00 | (1,200.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 1,000.00 | 1,000.00 | |
07/31/98 | 1,000.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,000.00 | 1,000.00 |
You can use either Method 1 or Method 2 to create the Account Derivation rules for revenue recognition only. Set up the rules as follows:
ACCOUNT DERIVATION TABLE TYPE 1 - ACTUAL REVENUEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for revenue for reimbursed expenses | B (Base) | B (Base) | + creates a credit to the Reimbursed Expense account |
Define a reallocation rules for the Cost of Goods Sold account | R (Revenue) | - creates a debit to the Inter-Company Receivable account | |
Define a reallocation rule for the Work in Process account | R (Revenue) | + creates a creidt to the Work in Process account |
ACCOUNT DERIVATION TABLE TYPE 3 - UNBILLED ACCOUNTS RECEIVABLEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Inter-Company Receivable account |
ACCOUNT DERIVATION TABLE TYPE 1 - ACTUAL REVENUEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for revenue for reimbursed expenses | B (Base) | B (Base) | + creates a credit to the Reimbursed Expenses account |
ACCOUNT DERIVATION TABLE TYPE 3 - UNBILLED ACCOUNTS RECEIVABLEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define a base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Inter-Company Receivable account |
Define a reallocation rule for cost of goods sold | R (Revenue) | + creates a debit to the Cost of Goods Sold account | |
Define a reallocation rule for work in process | R (Revenue) | - creates a credit to the Work in Process account |
A company recognizes revenue for 1,200.00 over a two-month period. The second month, the company processes an invoice for 1,200.00. The original cost per unit is 10.00 for 100 units. The cost of each unit is recorded in the Work in Process account. After revenue is recognized for the units, the cost is moved from the Work in Process Account to the Cost of Goods Sold account. Revenue is recognized for each unit at 12.00 per unit.
The journal entries are:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Work in Process | 1,000.00 | |
Accounts Payable | (1,000.00) | ||
06/30/98 | Unbilled Accounts Receivable | 720.00 | |
Revenue | (720.00) | ||
06/30/98 | Cost of Goods Sold | 600.00 | |
Work in Process | (600.00) | ||
07/31/98 | Work in Process | 400.00 | |
Accounts Payable | (400.00) | ||
07/31/98 | Accounts Receivable | 1,200.00 | |
Unbilled Account Receivable | (1,200.00) | ||
07/31/98 | Unbilled Accounts Receivable | 480.00 | |
Revenue | (480.00) | ||
07/31/98 | Cost of Goods Sold | 400.00 | |
Work in Process | (400.00) |
In June, the Account Derivation Table rules for Table Type 1 - Actual Revenue first direct the 720.00 revenue amount to the Revenue account. The Account Derivation Table rules for Table Type 3 - Unbilled Receivables directs the 720.00 for unbilled receivables to the Unbilled Accounts Receivable account.
In July, the system uses the RC AAI to debit the Accounts Receivable account for the amount of the invoice. Then, the system uses Table Type 3 - Unbilled Receivables to create a 1,200.00 credit.
The system also determines whether the workfile transactions that make up the 1,200.00 invoice require any revenue adjustments. In this example, a 420.00 workfile transaction was not included in the revenue batch prior to creating the invoice. The system creates two additional journal entries for the revenue adjustments applicable to the workfile transaction.
The system uses the Account Derivation Table rules for Table Type 1 - Actual Revenue to adjust the revenue amount by 420.00 and create a credit to the Revenue account. Then the system uses the Account Derivation Table rules for Table Type 3 - Unbilled Receivables to adjust unbilled receivables by 420.00 and create a debit to the Unbilled Accounts Receivable account.
Note:
In this example, Unbilled Accounts Receivable reconciled to "zero" because of the timing difference between revenue recognition and invoicing. Typically, a variance would exist in the account each month because the system does not create reconciling entries to reconcile the unbilled balance.Finally, the system reduces the Work in Process and increases the Cost of Goods Sold by the cost amount each month.
The account postings and balances for June in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | 600.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | (600.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | 720.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | (720.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | 600.00 | |
06/30/98 | 600.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | 600.00 |
The account postings and balances for July in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 400.00 | 400.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | (600.00) | |
07/31/98 | 400.00 | (1,000.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | 720.00 | |
07/31/98 | 1,200.00 | (480.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | |||
07/31/98 | 1,200.00 | 1,200.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | (720.00) | |
07/31/98 | 480.00 | (1,200.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | 720.00 | |
07/31/98 | 1,200.00 | (480.00) | |
07/31/98 | 480.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 400.00 | 400.00 | |
07/31/98 | 400.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | 600.00 | |
07/31/98 | 400.00 | 1,000.00 |
The Reverse Entry Control (REC) field is used to prevent the system from creating a reversing entry for rules on the Account Derivation Table. You can use the Reverse Entry Control field with any entry other than the Base Entry rule for a table.
When the Journal Generation Control is 3, the system uses Table Type 3 -Unbilled Accounts Receivable to create both a journal entry for revenue recognition and invoices. The revenue recognition journal entry debits Unbilled Accounts Receivable. The invoice journal entry credits Unbilled Accounts Receivable.
If a reallocation rule is defined on Table Type 3 - Unbilled Accounts Receivable and is only applicable to revenue recognition, the Reverse Entry Control should be set to prevent the system from using the rule when it creates the invoice journal entries.
The reallocation rule for the Work in Process and Cost of Goods Sold accounts creates journal entries only when the system cerates the revenue recognition journals. In this case, the value in the Reverse Entry Control field should be 0 to prevent the system from creating additional journal entries, per Method 2 in the following account derivation rules.
You can use Method 1 or Method 2 to create the Account Derivation Table rules for revenue recognition and invoicing without revenue reconciliation. Set up the rules as follows:
ACCOUNT DERIVATION TABLE TYPE 1 - ACTUAL REVENUEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for revenue | B (Base) | B (Base) | + creates a credit to the Revenue account |
Define a reallocation rule for the cost of goods sold | R (Revenue) | - creates a debit to the Cost of Goods Sold account | |
Define a reallocation rule for the work in process | R (Revenue) | + creates a credit to the Work in Process account |
ACCOUNT DERIVATION TABLE TYPE 3 - UNBILLED ACCOUNTS RECEIVABLEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Inter-Company Receivable account |
ACCOUNT DERIVATION TABLE TYPE 1 - ACTUAL REVENUEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for revenue for reimbursed expenses | B (Base) | B (Base) | + creates a credit to the Reimbursed Expenses account |
ACCOUNT DERIVATION TABLE TYPE 3 - UNBILLED ACCOUNTS RECEIVABLEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define a base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Inter-Company Receivable account |
Define a reallocation rule for cost of goods sold | R (Revenue) | + creates a debit to the Cost of Goods Sold account (REC is 0) | |
Define a reallocation rule for work in process | R (Revenue) | - creates a credit to the Work in Process account (REC is 0) |
A company recognizes revenue for 1,200.00 over a two-month period. The second month, the company processes an invoice for 1,200.00. The original cost per unit is 10.00 for 100 units. The cost of each unit is recorded in the Work in Process account. After revenue is recognized for the units, the cost is moved from the Work in Process Account to the Cost of Goods Sold account. Revenue is recognized for each unit at 12.00 per unit.
The journal entries for June are:
Date | Account | Debit | Credit |
---|---|---|---|
06/30/98 | Work in Process | 600.00 | |
Accounts Payable | (600.00) | ||
06/30/98 | Unbilled Accounts Receivable | 720.00 | |
Unbilled Revenue | (720.00) |
The account postings and balances for June in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | 600.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | (600.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | 720.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | (720.00) |
In June, the Account Derivation Table rules for Table Type 1 - Actual Revenue first direct the 720.00 revenue amount to the Revenue account. The Account Derivation Table rules for Table Type 3 - Unbilled Receivables direct the 720.00 for unbilled receivables to the Unbilled Accounts Receivable account.
The journal entries for July are:
Date | Account | Debit | Credit |
---|---|---|---|
07/31/98 | Work in Process | 400.00 | |
Accounts Payable | (400.00) | ||
07/31/98 | Unbilled Accounts Receivable | 480.00 | |
Unbilled Revenue | (480.00) | ||
07/31/98 | Accounts Receivable | 1,200.00 | |
07/31/98 | Unbilled Account Receivable | (1,200.00) | |
07/31/98 | Unbilled Revenue | 1,200.00 | |
07/31/98 | Unbilled Account Receivable | (1,200.00) | |
07/31/98 | Revenue | (1,200.00) | |
07/31/98 | Cost if Goods Sold | 1,000.00 | |
07/31/98 | Work in Process | (1,000.00) |
The account postings and balance for July in the general ledger are:
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | 600.00 | |
07/31/98 | 400.00 | 1,000.00 | |
07/31/98 | 1,000.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | |||
07/31/98 | 1,000.00 | 1,000.00 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 600.00 | (600.00) | |
07/31/98 | 400.00 | (1,000.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | 720.00 | |
07/31/98 | 480.00 | 1,200.00 | |
07/31/98 | 1,200.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | 720.00 | 720.00 | |
07/31/98 | 480.00 | 1,200.00 | |
07/31/98 | 1,200.00 | 0 | |
07/31/98 | 1,200.00 | (1,200.00) | |
07/31/98 | 1,200.00 | 0 |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 | |||
07/31/98 | 1,200.00 | (1,200.00) |
Date | Debit | Credit | Balance |
---|---|---|---|
06/30/98 |
Date | Debit | Credit | Balance |
---|---|---|---|
07/31/98 | 1,200.00 | (1,200.00) |
When you set up the Account Derivation Tables rules for revenue recognition and invoicing with reconciliation, you must define all three table types. Set up the rules as follows:
ACCOUNT DERIVATION TABLE TYPE 1 - UNBILLED REVENUEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define base rule for unbilled revenue | B (Base) | B (Base) | + creates a credit to the Unbilled Revenue account using the revenue recognition amount when processing revenue recognition |
Define a base rule for unbilled revenue | B (Base) | B (Base) | + creates a debit to the Unbilled Revenue account using the revenue recognition amount when processing revenue reconciliation during invoicing |
ACCOUNT DERIVATION TABLE TYPE 2 - ACTUAL REVENUEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define a base rule for revenue amount from the invoice | B (Base) | B (Base) | + creates a credit to the revenue account using the invoice amount when processing revenue reconciliation during invoicing |
Remove cost from Work in Process account | C (Cost) | + creates a credit to the Work in Process account when processing revenue reconciliation during invoicing | |
Reallocate cost to Cost of Goods Sold account C (Cost) | creates a debit to the Cost of Goods Sold account when processing revenue reconciliation during invoicing | Reallocate cost to Cost of Goods Sold account C (Cost) | creates a debit to the Cost of Goods Sold account when processing revenue reconciliation during invoicing |
Note:
The Reverse Entry Control (REC) field does not apply because the reallocation rules for the Work in Process and Cost of Goods Sold accounts are defined on Table Type 2 - Actual Revenue. Table Type 2 - Actual Revenue is used only during invoice journaling when the system performs the revenue reconciliation.ACCOUNT DERIVATION TABLE TYPE 3 - UNBILLED ACCOUNTS RECEIVABLEAccount Basis and Tax Basis Increase/Decrease Rules
Purpose | Account Basis | Tax Basis | +/- |
---|---|---|---|
Define a base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Unbilled Accounts Receivable account when processing the revenue recognition amount during revenue recognition processing |
Define a base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Unbilled Accounts Receivable account when processing the invoice amount during invoice processing |
Define a base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a credit to the Unbilled Accounts Receivable account when processing the revenue recognition amount for revenue reconciliation during invoice processing |
Define a base rule for unbilled accounts receivable | B (Base) | B (Base) | + creates a debit to the Unbilled Accounts Receivable account when processing the invoice amount for revenue reconciliation during the invoice processing |
A component is a markup that can be associated with a workfile transaction's cost, revenue, and invoice amount, or any combination of these three. If a component amount exists, an account derivation rule can reclassify the amount.
Figure C-1 Account Derivation Table (Component Reconciliation) screen
For example, a company might add 7 cents per hour onto all hourly employees' wages for the cost of benefits. When this amount is included in an invoice, the company wants the revenue amount for the benefits recovery separated from the sales revenue amount. If the current invoice included a 7 dollar billing for 100 hours, the reclassification journal entry would be:
Reclassification | Debit | Credit |
---|---|---|
Sales Revenue | 7.00 | |
Benefits Recovery | (7.00) |
To create this journal entry, you can use the account derivation rules to create a reallocation rule that reduces the sales revenue by the component amount and increases the benefits recovery. Both reallocation rules include the component name associated wit the 7 cents per hour cost of benefits so that the system can determine the recovery amount.
You can define component reallocation rules on any of the three types of account derivation tables. To reallocate components, you must determine the following:
Appropriate journal processing stage for the reallocation
Base rule associated with the component reallocation
Object account range for the workfile transaction associated with the component
Resulting accounts for the reallocation amount
Amount Basis for the component amount, such as cost, invoice, or revenue
Component code
Percentage to reallocate
To define the component reallocation rule, access the appropriate account derivation table and define the base rule. Then, define the appropriate reallocation rule to reduce the component amount from the original resulting account. Last, define the appropriate reallocation rule to increase the component amount for the new resulting account.
Reallocation rules can be dependent on the results of a conditional test. When you specify a test for a conditional reallocation rule, the system must test each condition before it can execute each account derivation rule. This additional processing increases the time it takes for the system to create the resulting journal entries.
Each conditional test can include one or more types of tests the system must execute for the Condition Code before it applies the reallocation rule. To assign a condition code to a reallocation rule, you must determine the following:
Appropriate journal processing stage for the conditional reallocation
Base rule associated with the conditional reallocation rule
Object account range for the workfile transactions associated with the conditional reallocation rule
Resulting accounts for the conditional reallocation amount
Applicable amount basis and tax basis for the conditional reallocation rule
Condition code tests
Figure C-2 Account Derivation Table (Reallocation Rules) screen
See Also:
When the invoice and revenue amounts are marked up independent of each other, the Journal Generation Control for revenue recognition with or without reconciliation affects the variance balance the system maintains in the Unbilled Accounts Receivable and Unbilled Revenue accounts.
The Independent Revenue/Invoice constant determines if the markup amounts calculated for the workfile transactions must use the same rules for the invoice and revenue amounts. If the constant is set to allow different markup rules for the invoice and revenue amounts, processing invoices and revenue recognition without reconciliation creates a permanent variance between unbilled accounts receivable and actual accounts receivable amounts. Invoice and revenue amounts are always different.
If the Independent Revenue/Invoice constant is set to allow different markup rules for the invoice and revenue amounts, processing invoices and revenue recognition with reconciliation forces the unbilled accounts to reconcile, but allows the invoice and revenue amounts to be different.
The following results occur based on the relationships between the system constants and the revenue recognition process:
System Constants | System Constants | Revenue Recognition Results | Revenue Recognition Results | Revenue Recognition Results |
---|---|---|---|---|
Journal Generation Control | Independent Revenue/Invoice Flag | Revenue Amount | Invoice Amount | Unbilled Accounts Receivable |
3 | 0 | Same | Same | No Variance |
3 | 1 | Different | Different | Variance |
4 | 0 | Same | Same | No Variance |
4 | 1 | Different | Different | No Variance |
Note:
If the Journal Generation Control is:3 - process revenue recognition without reconciliation
4 - process revenue recognition with reconciliation
If the Independent Revenue Invoice Control is:
0 - the invoice amount always equals the revenue amount
1 - the invoice and revenue amounts can differ
See Also: