About percent complete revenue recognition for contracts with projects

You can recognize revenue for fixed-fee projects associated with contracts based on percentage of completion. You can associate the percentage of completion with the project as a whole or with specific tasks associated with the project. In either scenario, the percentage of completion can automatically be calculated by the system based on a ratio of time duration or it can be determined by a user.

Using a percent complete recognition method, you can choose to recognize revenue:

  • as the project progresses at whatever percentage of completion exists for the specified period
  • when certain completion percentage threshold values are met
  • when the project is completed or accepted

Time-based percentage of completion

Intacct can calculate a project's or task's percentage of completion using a ratio determined by the number of approved hours for a given period divided by the total number of source hours. For projects, the source hours can be the total Planned or Estimated hours from all project tasks or the value entered as Budgeted hours for the project. For tasks, the source hours can be the value entered for either Planned or Estimated hours for that task.

Intacct calculates the percentage of completion when a user executes Preview in the Update percent complete schedules in the Manage Revenue and Expense Recognition page. It gathers all approved timesheet hours dated on or before the selected As of date, determines the completion percentage, and multiplies the percentage against the total contract line Flat/Fixed amount. It then presents the amount available to be recognized, if any.

Example

Say you have a contract line for a three-month project starting January 1. You want to recognize revenue based on the planned duration of the project as a whole. You agree on a Flat/Fixed amount of 10,000.00 and you plan the project to take 50.00 hours.

As of January 31, employees have submitted timesheets totaling 18 hours, all of which are approved. You then run Update percent complete schedules as of January 31. Intacct presents 3,600.00 to be recognized in January.

(18 / 50 = 36%) * 10,000.00 = 3,600.00

As of February 28, employees submitted timesheets totaling 22 hours, but only 20 hours were approved. When you run Update percent complete schedules as of February 28, Intacct shows 4,000.00 available to be recognized.

( (18 + 20 / 50 = 76%) * 10,000.00 = 7,600 ) - 3,600 = 4,000.00

User-determined percentage of completion

You can recognize revenue based on a user-determined percentage of completion for a project or task. A user, usually the project manager, simply enters the desired percentage value in the Observed percent completed table on the applicable project or task.

As the project or task progresses, the user adds each applicable Observed percent completed value accordingly. When a user executes Update percent complete schedules in the Manage Revenue and Expense Recognition page as of a selected date, Intacct multiplies the percentage against the total contract line Flat/Fixed amount, subtracts any previously recognized revenue, and then presents the amount available to be recognized, if any.

Example

Say you have a contract line for a three-month project starting January 1. You agree on a Flat/Fixed amount of 10,000.00. You want to recognize revenue at the project level.

On January 31, you evaluate the project's progress and believe the project is 30% completed. You enter 30 in the Observed percent completed table on the project. You then run Update percent complete schedules in Manage Revenue and Expense Recognition as of January 31. Intacct presents 3,000.00 to recognize in January.

30% * 10,000.00 = 3,000.00

On February 28, you evaluate the project's progress and believe the project is 65% completed. You enter 65 in the Observed percent completed table on the project. You then run Update percent complete schedules in Manage Revenue and Expense Recognition as of February 28. Intacct presents 3,500.00 to recognize in February.

(65% * 10,000.00 = 6,500) - 3,000 = 3,500.00

Recognition thresholds

With either time-based or user-defined recognition sources, you can set threshold values in revenue templates so that project revenue is only recognized when certain thresholds are met. When the system identifies the applicable percentage of completion, it compares it against the applicable threshold level. If the percentage is equal to or greater than a threshold level, the system will present revenue for recognition. If the percentage is less than the applicable threshold level, the system does not present revenue for recognition.

Example

Say you have a design company, and you typically recognize revenue in stages as a project progresses, but you do not recognize the revenue in exact proportion to the project's percentage of completion as many last minute changes usually come in at the end of a project. You want to recognize revenue as follows:

  • When the project is 35% complete, recognize 30% of the revenue
  • When the project is 65% complete, recognize an additional 30% of the revenue
  • When the project is 100% complete, recognize the remaining 40% of the revenue

You have a contract line for a three-month project starting January 10. You agree on a Flat/Fixed amount of 10,000.00 and you want to recognize revenue at the project level.

You run Update percent complete schedules as of January 31. The system finds a percentage of completion value of 30%. The system does not present any available revenue to recognize for the project as 30 is less than the first threshold setting of 35.

You run Update percent complete schedules as of February 28. The system finds a percentage of completion value of 60%. The system presents 3,500.00 to recognize as 60 is greater than 35 but less than the next threshold level of 65. You recognize 3,500.00 in February.

35% * 10,000.00 = 3,500.00

You run Update percent complete schedules as of March 31. The system finds a percentage of completion value of 100% as you finished the project earlier than expected. The system presents the remaining 6,500.00 to recognize.

(30% + 40% = 70%) * 10,000.00 = 6,500.00