Armanino Blog
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Project Accounting - Deferred Revenue

January 29, 2009

The Project Accouting module in Dynamics GP can be used to accurately manage deferred revenue. Many of our clients use this function when their business involves a mix of project related activity and subscription based or contract based revenue.

To use Project Accounting for manageing deferred revenue there are a couple of rules:

  • Use a "Service" Fee Type
  • Use a "Time and Materials" Project Type

Project Accounting will allocate the fee amount evenly over the duration represented by the start date and end date of the project, or as identified in the Fee Entry screen.

This is an example of a Fee for which the revenue will be deferred over 12 months.

Fee-Maintenance>

These three accounts will handle all accounting for the invoicing and revenue recognition of the fee.

Fee Accounts>

Here's an example of the fee in a project:

Fee Entry>

To invoice the fee, you just use the standard invoicing process in Project Accounting. To recognize revenue you use the standard revenue recognition process. You can use Cycle Revenue Recognition or create the transaction manually by navigating to: Transactions >> Project >> Billing >> Revenue Recognition.

But what happens with a service fee that spans a period of time, is that revenue will be recognized for the fee amount, from the start date, up to the Cutoff date specified. This will then effectively defer the revenue associated with the fee, from the last time the revenue recognition process was run for the fee, and the current Cutoff date.

Here's an example of the Revenue Recognition Entry screen:

Revenue Recognition Entry>

This is the detail of the results of the revenue recognition calcuation:

Revenue Recognition Calculation>

In my example, the revenue was recognized from 4/12/2017, to 5/31/2017: (50-1) days / (365-1) days = 13.46% x $10,000 = $1,346.00.

Why one day is taken off the numerator and denominator is something known only to the developer.

Here are the examples from KB# 885070:

A service fee can be set up for any time period that you specify. The percent complete is based on the total number of days for the service fee. The Begin Date field and the End Date field are used to calculate the number of days for the service fee.
Then, the percent complete is multiplied by the fee amount to obtain the revenue recognition amount. Billing has no affect on the amount that is recognized. The following examples show how the revenue recognition amount is calculated:

Service fee example 1

Fee Amount: $10,000
Begin Date: 1/1/2007
End Date: 4/30/2007
Total Number of Days = 121 days (31 + 29 + 31 + 30)
 If revenue recognition is run with a cutoff date of 2/15/2007, the percent complete is calculated as follows:
 Percent Complete = ((31 + 15) - 1) / (121 - 1) = 0.375 = 37.50%
Amount Recognized = 37.50% * $10,000 = $3750

Service fee example 2

Fee Amount: $1000
Begin Date: 1/1/2006
End Date: 2/29/2007
Total Number of Days = 425 days (365 + 31 + 29)
If revenue recognition is run with a cutoff date of 2/15/2007, the percent complete is calculated as follows:
Percent Complete = ((365 + 31 + 15) - 1) / (425 - 1) = 0.9669811 = 96.70%
Amount Recognized = 96.70% * $1000 = $967

If you have a deferred revenue tracking issue related to project-type business activities, consider using Project Accounting to manage the whole process.

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