Understanding the Profit Recognition Build Program (R51800)
The first step in the profit recognition process is to generate the profit recognition data. You can generate the information in preliminary or final mode:
In preliminary mode, the system generates a report of the actual and budget amounts and calculates the projected final values and percent complete. Using the report, you can validate that all transactions have been included. If you need to revise budget or actual amounts, you can do so easily and rerun the report.
In final mode, the system performs the same calculations and generates the same report as it does when you run the program in preliminary mode, but it also generates records in the profit recognition tables (F5144 and F5145). After you have generated records in the profit recognition tables, you can still adjust the projected final amounts or the percent complete. But if you need to adjust budget or actual amounts, you must do one of the following procedures:
Run the Remove a Recognition Version program (R51810), enter the revisions, and then rerun Profit Recognition Build.
The system generates new profit recognition information based on the revisions that you make.
Enter your revisions, and rerun Profit Recognition Build.
The system generates adjusting journal entries for the revisions (incremental differences) only.
Depending on whether you want the system to base profit on costs or revenues and on the information that you enter, the system calculates one or more of these values:
The percentage of completion for the job or revenue performance obligation (RPO).
If you do not enter a percent complete value directly into the F% ledger, the system calculates it by dividing the amounts in the AA ledger by the amounts in the HA ledger. The amounts in the AA ledger can be costs, revenues, or both, depending on the setting of the Recognition Method processing option.
The percent complete for a job or RPO cannot be greater than 100 percent or less than 0 percent. If the percent complete is greater than 100 percent, the system uses 100 percent to calculate profit. If the percent complete is less than 0, the system uses 0 to calculate profit.
The projected final amounts.
If you do not enter a percent complete, the system uses the total from the HA ledger for the job or RPO. If you enter a percent complete, the system recalculates the projected final value by dividing the actual amount by the percent complete. For example, if the percent complete were 25 percent and the actual cost were 1000, the projected final cost would be 4,000.
(Release 9.2 Update) You can also specify a different ledger that you want your projected final amounts based on. You specify this ledger type in the processing options.
The earned cost and revenue.
The system calculates earned amounts by multiplying the projected final amounts by the percent complete.
Over and under billing amounts.
The system calculates over and under values by subtracting the earned amounts from the actual amounts.
The amount of profit.
The system calculates profit by subtracting cost from revenue.
You can set up a threshold percent complete so that the system does not calculate the profit for a job or revenue performance obligation (RPO) until the percentage of completion is greater than or equal to the threshold percent complete:
If the percentage of completion is less than the threshold, the system records the earned job-to-date profit as zero.
If the percentage of completion is greater than the threshold percent, and you calculate profit based on costs, the system forces the revenue earned to equal the cost earned.
If the percentage of completion is greater than the threshold percent, and you calculate profit based on revenue, the system forces the cost earned to equal the revenue earned.
If the percentage of completion is greater than the threshold percent and you calculate profit using whichever results in the lower profit (cost or revenue), the system adjusts the appropriate account accordingly.
If the percent of completion is equal to or greater than the threshold, you can immediately recognize any profit that was deferred or you can amortize the profit over the remaining life of the job or RPO.
Profit can be recognized for the project (across multiple jobs) or at the job level or at the RPO level.
See Generating Profit Recognition Data for Revenue Performance Obligations
In addition, you can regenerate profit information for a closed period when adjustments are needed.
When you run the Profit Recognition Build program in final mode, the system:
Generates one record in the Profit Recognition table (F5144).
The system updates the version fields (VERS and VER) with the version number that you used to run Profit Recognition Build.
The system updates the next number field (NNBR) with the next number that it retrieves from the Next Numbers table (F0002).
The system updates the cost and revenue accounts for actual, revised budget, and projected final amounts.
The system uses the JCCA and JCST AAIs to determine the range of revenue and cost accounts.
The system updates the Record Requires Regeneration field (G7ZFU1) to Y to indicate that journal entries have not been generated for the profit recognition records.
Generates one record for each cost type in the Profit Recognition Account Balance table (F5145).
The system calculates the amount of profit for each cost type.
Generates a report (Profit Recognition File Build) of the information that it calculates.
You can review the information online using the Single Job Adjustments program or the Group Job Adjustments program.
If you set a processing option, the system generates the Executive Summary Report. The difference between this report and the Profit Recognition File Build report is that it also includes the over billing and under billing amounts and provision for loss amounts, if any. It also prints profit information by project, instead of by job. If you do not specify to generate the Executive Summary Report, you can generate it at any time by selecting the option from the menu.
After you generate profit recognition information in final mode, you can make online adjustments using the P51440 program or the P5144 program. You can also generate journal entries to update the appropriate cost and revenue accounts, or delete the version and remove the profit recognition records so that you can make changes to source tables and rebuild it based on different criteria.