Example 3 - 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, accrued accounts receivable, and invoice accounts will:
Contain variances before the invoice journal is created.
Reconcile over time when all invoice journal entries for the completed project are generated and posted to the account ledger.
When you process revenue recognition and generate invoices without reconciliation, this information is true:
The journal generation control is 3 (revenue recognition and invoicing, without requiring revenue reconciliation).
Invoicing does not apply when you process revenue recognition.
The system calculates the same amount for actual revenue and accrued accounts receivable.
The system calculates the amounts for revenue and accrued accounts receivable simultaneously.
When the work is complete and you process invoices, the system:
Calculates the same amount for accrued accounts receivable and accounts receivable.
Calculates the amounts for accrued accounts receivable and accounts receivable simultaneously.
Uses the RC AAI to designate the accounts receivable account.
For example, suppose that 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. It processes the invoice on September 25.
The system creates these journal entries for the project costs:
G/L Date |
Account |
Debit |
Credit |
|---|---|---|---|
June 30, 2005 |
Project cost |
350.00 |
|
June 30, 2005 |
Accounts payable |
(350.00) |
|
July 31, 2005 |
Project cost |
500.00 |
|
July 31, 2005 |
Accounts payable |
(500.00) |
|
September 30, 2005 |
Project cost |
150.00 |
|
September 30, 2005 |
Accounts payable |
(150.00) |
The account postings and balances in the general ledger for project costs are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
350.00 |
350.00 |
|
July 31, 2005 |
500.00 |
850.00 |
|
August 31, 2005 |
850.00 |
||
September 30, 2005 |
150.00 |
1,000.00 |
The system uses these table types to direct the system to the base rules for the journal entries:
Billing AAI table number 4811, which directs the system to the base rules for actual revenue.
Billing AAI table number 4832, which directs the system to the base rules for accrued accounts receivable.