C Accounting for the Billing Cycle

This appendix contains these topics:

Section C.1, "Base Rules,"
Section C.2, "Invoicing Only,"
Section C.3, "Revenue Recognition Only,"
Section C.4, "Revenue Recognition and Invoicing without Reconciliation,"
Section C.5, "Revenue Recognition and Invoicing with Reconciliation,"
Section C.6, "Reallocation Rules,"
Section C.7, "Invoicing Only,"
Section C.8, "Revenue Recognition Only,"
Section C.9, "Invoicing and Revenue Recognition without Reconciliation,"
Section C.10, "Invoicing and Revenue Recognition with Reconciliation,"
Section C.11, "Component Reallocations,"
Section C.12, "Conditional Reallocation Rules,"
Section C.13, "Independent Revenue/Invoice Amount Basis."

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:

Rule	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 Service 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.

C.1 Base Rules

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

C.2 Invoicing Only

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:

Figure C-1 Example Invoicing Journal Entry

Description of "Figure C-1 Example Invoicing Journal Entry"

The "T" account posting in the general ledger is:

Figure C-2 Example Invoicing T Account Posting in the General Ledger

Description of "Figure C-2 Example Invoicing T Account Posting in the General Ledger"

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.

C.3 Revenue Recognition Only

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:

Figure C-3 Example Revenue Recognition Journal Entry

Description of "Figure C-3 Example Revenue Recognition Journal Entry"

The "T" account posting in the general ledger is:

Figure C-4 Example Revenue Recognition T Account Posting in the General Ledger

Description of "Figure C-4 Example Revenue Recognition T Account Posting in the General Ledger"

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

C.4 Revenue Recognition and Invoicing without Reconciliation

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:

Figure C-5 Journal Entries for the Project Costs

Description of "Figure C-5 Journal Entries for the Project Costs"

The "T" account postings and balances in the general ledger are:

Figure C-6 T Account Postings and Balances in the General Ledger

Description of "Figure C-6 T Account Postings and Balances in the General Ledger"

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

C.4.1 Revenue Recognition for June

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:

Figure C-7 Journal Entry for June Revenue Recognition

Description of "Figure C-7 Journal Entry for June Revenue Recognition"

The "T" account postings and balances for June in the general ledger are:

Figure C-8 T Account Postings and Balances for June in the General Ledger

Description of "Figure C-8 T Account Postings and Balances for June in the General Ledger "

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.

Figure C-9 Debit Journal Entry for the June Revenue Recognition Amount

Description of "Figure C-9 Debit Journal Entry for the June Revenue Recognition Amount"

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.

C.4.2 Revenue Recognition for July

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:

Figure C-10 Journal Entry for July Revenue Recognition

Description of "Figure C-10 Journal Entry for July Revenue Recognition"

The "T" account postings and balances for July in the general ledger are:

Figure C-11 T Account Postings and Balances for July in the General Ledger

Description of "Figure C-11 T Account Postings and Balances for July in the General Ledger"

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.

Figure C-12 Debit Journal Entry for July Revenue Recognition Amount

Description of "Figure C-12 Debit Journal Entry for July Revenue Recognition Amount"

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.

C.4.3 Revenue Recognition for August

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:

Figure C-13 August Balances in the General Ledger

Description of "Figure C-13 August Balances in the General Ledger"

C.4.4 Invoicing for September

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:

Figure C-14 September Invoicing Journal Entry

Description of "Figure C-14 September Invoicing Journal Entry"

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:

Figure C-15 September Invoicing T Account Postings and Balances in the General Ledger

Description of "Figure C-15 September Invoicing T Account Postings and Balances in the General Ledger"

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.

Figure C-16 September Invoicing Accounts Receivable Table

Description of "Figure C-16 September Invoicing Accounts Receivable Table"

Accounts receivable contains the actual invoiced amount. The system uses the RC AAI to create the journal entry for Accounts Receivable.

C.4.5 Revenue Recognition Adjustments for September

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:

Figure C-17 September Adjustment Journal Entry for Revenue Recognition

Description of "Figure C-17 September Adjustment Journal Entry for Revenue Recognition"

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:

Figure C-18 September T Account Postings and Balances in the General Ledger

Description of "Figure C-18 September T Account Postings and Balances in the General Ledger"

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.

Figure C-19 Credit Journal Entry for the Revenue Recognition Amount (1 of 2)

Description of "Figure C-19 Credit Journal Entry for the Revenue Recognition Amount (1 of 2)"

Figure C-20 Credit Journal Entry for the Revenue Recognition Amount (2 of 2)

Description of "Figure C-20 Credit Journal Entry for the Revenue Recognition Amount (2 of 2)"

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.

C.5 Revenue Recognition and Invoicing with Reconciliation

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:

Figure C-21 Journal Entry for Project Cost

Description of "Figure C-21 Journal Entry for Project Cost"

The "T" account postings and balances for the cost in the general ledger are:

Figure C-22 T Account Postings and Balances for the Cost in the General Ledger

Description of "Figure C-22 T Account Postings and Balances for the Cost in the General Ledger"

C.5.1 Revenue Recognition for June

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:

Figure C-23 Journal Entry for Revenue Recognition for Unbilled Revenue and Unbilled Accounts Receivable

Description of "Figure C-23 Journal Entry for Revenue Recognition for Unbilled Revenue and Unbilled Accounts Receivable"

The "T" account postings and balances for June in the general ledger are:

Figure C-24 June T Account Postings and Balances in the General Ledger

Description of "Figure C-24 June T Account Postings and Balances in the General Ledger"

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.

Figure C-25 Debit Journal Entry for Revenue Recognition Amount

Description of "Figure C-25 Debit Journal Entry for Revenue Recognition Amount"

Account Derivation Table Type 1 directs the system to unbilled revenue base rules. It creates a credit journal entry for the revenue recognition amount.

C.5.2 Invoicing for July

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:

Figure C-26 Journal Entry for June and July Workfile Transactions

Description of "Figure C-26 Journal Entry for June and July Workfile Transactions"

The "T" account postings and balances for July in the general ledger are:

Figure C-27 July T Account Postings and Balances in the General Ledger

Description of "Figure C-27 July T Account Postings and Balances in the General Ledger"

S``Account Derivation Table Type 3 directs the system to unbilled accounts receivable base rules. It creates a credit journal entry for the invoice amount.

Figure C-28 Credit Journal Entry for the Invoice Amount

Description of "Figure C-28 Credit Journal Entry for the Invoice Amount"

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.

C.5.3 Revenue Recognition and Reconciliation for July

Revenue Recognition

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:

Figure C-29 Journal Entry for Reconciliation of Revenue Recognition Amounts

Description of "Figure C-29 Journal Entry for Reconciliation of Revenue Recognition Amounts"

The account postings and the balances in the general ledger for the journals are:

Figure C-30 Account Postings and Balances in the General Ledger for the Journals

Description of "Figure C-30 Account Postings and Balances in the General Ledger for the Journals"

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.

Figure C-31 Debit Journal Entry for the Revenue Recognition Amount

Description of "Figure C-31 Debit Journal Entry for the Revenue Recognition Amount"

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:

Figure C-32 Journal Entries for the Reconciliation of the Revenue Recognition Amounts

Description of "Figure C-32 Journal Entries for the Reconciliation of the Revenue Recognition Amounts"

The account postings and the balances in the general ledger for the journals are:

Figure C-33 Account Postings and Balances in the General Ledger for the Journals

Description of "Figure C-33 Account Postings and Balances in the General Ledger for the Journals"

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.

Figure C-34 Debit Journal Entry for Revenue Recognition Amount

Description of "Figure C-34 Debit Journal Entry for Revenue Recognition Amount"

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:

Figure C-35 Journal Entries for Revenue Recognition

Description of "Figure C-35 Journal Entries for Revenue Recognition"

Figure C-36 Journal Entries for Revenue Recognition

Description of "Figure C-36 Journal Entries for Revenue Recognition"

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.

Figure C-37 Debit Journal Entry for the Invoice Amount

Description of "Figure C-37 Debit Journal Entry for the Invoice Amount"

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.

C.6 Reallocation Rules

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 preform 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:

Source	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.

C.7 Invoicing Only

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:

Figure C-38 Invoicing Only Journal Entries

Description of "Figure C-38 Invoicing Only Journal Entries"

The Account Derivation Table rules for Table Type 3 - Actual 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:

Figure C-39 June Account Postings and Balances in the General Ledger

Description of "Figure C-39 June Account Postings and Balances in the General Ledger"

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.

C.7.1 Account Derivation Table Rules

You set up the Account Derivation Table rules for invoicing only as follows:

Figure C-40 Account Derivation Table Rules for Invoicing

Description of "Figure C-40 Account Derivation Table Rules for Invoicing"

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.

C.8 Revenue Recognition Only

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:

Figure C-41 Revenue Recognition Only Journal Entries

Description of "Figure C-41 Revenue Recognition Only Journal Entries"

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:

Figure C-42 June Account Postings and Balances in the General Ledger

Description of "Figure C-42 June Account Postings and Balances in the General Ledger"

C.8.1 Account Derivation Table Rules

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:

Figure C-43 Method 1

Description of "Figure C-43 Method 1"

Figure C-44 Method 2

Description of "Figure C-44 Method 2"

Figure C-45 Method 2 (Continued)

Description of "Figure C-45 Method 2 (Continued)"

C.9 Invoicing and Revenue Recognition without Reconciliation

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:

Figure C-46 Without Reconciliation Journal Entries

Description of "Figure C-46 Without Reconciliation Journal Entries"

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:

Figure C-47 June Account Postings and Balances in the General Ledger (1 of 2)

Description of "Figure C-47 June Account Postings and Balances in the General Ledger (1 of 2)"

Figure C-48 June Account Postings and Balances in the General Ledger (2 of 2)

Description of "Figure C-48 June Account Postings and Balances in the General Ledger (2 of 2)"

The account postings and balances for July in the general ledger are:

Figure C-49 July Account Postings and Balances in the General Ledger (1 of 2)

Description of "Figure C-49 July Account Postings and Balances in the General Ledger (1 of 2)"

Figure C-50 July Account Postings and Balances in the General Ledger (2 of 2)

Description of "Figure C-50 July Account Postings and Balances in the General Ledger (2 of 2)"

C.9.1 Reverse Entry Control

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 creates 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.

C.9.2 Account Derivation Table 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:

Figure C-51 Method 1

Description of "Figure C-51 Method 1"

Figure C-52 Method 2

Description of "Figure C-52 Method 2"

Figure C-53 Method 2 (Continued)

Description of "Figure C-53 Method 2 (Continued)"

C.10 Invoicing and Revenue Recognition with Reconciliation

The journal entries for June are:

Figure C-54 Journal Entries for June

Description of "Figure C-54 Journal Entries for June"

The account postings and balances for June in the general ledger are:

Figure C-55 June Account Postings and Balances in the General Ledger (1 of 2)

Description of "Figure C-55 June Account Postings and Balances in the General Ledger (1 of 2)"

Figure C-56 June Account Postings and Balances in the General Ledger (2 of 2)

Description of "Figure C-56 June Account Postings and Balances in the General Ledger (2 of 2)"

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:

Figure C-57 July Journal Entries

Description of "Figure C-57 July Journal Entries"

The account postings and balance for July in the general ledger are:

Figure C-58 July Account Postings and Balances in the General Ledger (1 of 4)

Description of "Figure C-58 July Account Postings and Balances in the General Ledger (1 of 4)"

Figure C-59 July Account Postings and Balances in the General Ledger (2 of 4)

Description of "Figure C-59 July Account Postings and Balances in the General Ledger (2 of 4)"

Figure C-60 July Account Postings and Balances in the General Ledger (3 of 4)

Description of "Figure C-60 July Account Postings and Balances in the General Ledger (3 of 4)"

Figure C-61 July Account Postings and Balances in the General Ledger (4 of 4)

Description of "Figure C-61 July Account Postings and Balances in the General Ledger (4 of 4)"

C.10.1 Account Derivation Table Rules

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:

Figure C-62 Account Derivation Table Rules, Types 1 and 2

Description of "Figure C-62 Account Derivation Table Rules, Types 1 and 2"

Figure C-63 Account Derivation Table Rules, Type 2 (Actual Revenue)

Description of "Figure C-63 Account Derivation Table Rules, Type 2 (Actual Revenue)"

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.

Figure C-64 Account Derivation Tables, Type 3

Description of "Figure C-64 Account Derivation Tables, Type 3"

Figure C-65 Account Derivation Tables, Type 3 (Continued)

Description of "Figure C-65 Account Derivation Tables, Type 3 (Continued)"

C.11 Component Reallocations

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-66 Account Derivation Table screen

Description of "Figure C-66 Account Derivation Table 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:

Figure C-67 Reclassification Journal Entry

Description of "Figure C-67 Reclassification Journal Entry"

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.

C.11.1 Defining Component Reallocation Rules

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.

C.12 Conditional Reallocation Rules

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-68 Account Derivation Table screen

Description of "Figure C-68 Account Derivation Table screen"

C.13 Independent Revenue/Invoice Amount Basis

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:

Figure C-69 Independent Revenue Results

Description of "Figure C-69 Independent Revenue Results"

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