Reconciliation for Independent Revenue and Invoice Markup

If you use the same markup rules for revenue and invoicing, no variance generally exists between the recognized revenue and invoice amounts. However, if you mark up revenue and invoice amounts independently, a permanent variance between recognized revenue and billing amounts can exist.

If you do not want variance balances to exist when you mark up revenue and invoice amounts independently, you can use revenue reconciliation to ensure that:

• No variances exist between recognized revenue and billing amounts.

• Balances for accrued accounts receivable and accrued revenue are zero.

For example, your company might renegotiate an hourly rate for rental equipment. Although the new rate is 75.00 USD per hour, your company continues to bill 70.00 USD per hour until the negotiations are complete.

For two hours of equipment use, the invoiced amount is 140.00 USD. If revenue is recognized at the new rate, the revenue amount is 150.00 USD. Without reconciliation, a variance of 10.00 USD remains in accrued (unbilled) accounts receivable.

Without revenue reconciliation, the system creates debits and credits for these journal entries:

Billing Step	Journal Entries
Revenue recognition	150.00 USD for accrued accounts receivable and accrued revenue
Billing	140.00 USD for actual accounts receivable and accrued accounts receivable

With revenue reconciliation, the system tracks, reverses, and reconciles recognized and actual revenue amounts. In the previous example, the system would create debits and credits, respectively, for these journal entries:

Billing Step	Journal Entries
Revenue recognition	140.00 USD for accounts receivable and accrued revenue
Revenue reconciliation	140.00 USD for accrued revenue and accrued accounts receivable 150.00 USD for accrued accounts receivable and actual revenue
Billing	150.00 USD for actual accounts receivable and accrued accounts receivable