Project Type : Fixed Price Percentage Completion – with work in progress
Billing Rule : Milestone
Project group Setup:
Project Transaction Summary:
|Activity||Sub activity||Type||Description||Qty||Cost / Unit||Cost Value||Sales / Unit||Sales Value|
This Transaction will be transfer to Project Forecast and after that we will transfer it to Project Budget for calculation of % completion calculation.
Project Billing Rule setup:
Go to Project Contract create Billing Rule select Billing Rule type = Milestone.
Lets also set Retention term as it is practice of retaining some portion of amount by Customer up to completion of contract.
Now we can set Project Stage as Release / In progress
Step – 1 : Move Item from Forecast to Item Requirement
Go to Item Forecasting and select line of item and click on Create Item Requirement.
Step – 2 : Request customer to release advance as per terms of contract
We can auto generate advance request just by clicking “Customer Advance”
In this Example I requesting 20% advance for starting project.
So, Go to “Customer Advance” and select either “Request Customer Advance” or “Request customer Advance as a percentage of revenue budget”
Step – 3 : Create Advance Invoice Proposal and Post Invoice
Following Journal will be pass after posting Advance Request Invoice:
Accounts Receivable – Domestic Dr. $50,251.60
WIP-Invoice on Account Cr. $50,251.60
After this Invoice customer will pay advance which will be posted by payment journal so it’s simple Payment Journal posting
Step – 4 : Create Purchase order from Item Requirement direct
Select line for of Item requirement for activity 1, 2 & 3 and click on Function and select Create Purchase Order.
it’s simple PO generation process so I’m not explaining in detail for the same.
Step – 5 : Receipt of Material
On receipt of Material for Activity 1, 2 & 3 we will post Material receipt in Purchase order.
System will pass following Journal entry on receipt of Material from Vendor
Finish Goods Inventory Dr. $113,800.00
Material Received- Un-Invoiced Cr. $113,800.00
Step – 6 : Vendor Invoice Recording
Invoice recording is simple as it is normal process.
System will pass following entry on invoice Posting:
Material Received- Un-Invoiced Dr. $113,800.00
Finish Goods Inventory Cr. $113,800.00
Finish Goods Inventory Dr. $113,800.00
Vendor Account Cr. $113,800.00
Step – 7 : Material Delivery to customer
We can post Packing slip directly from Item requirement.
Go to “Posting” and Select “Packing Slip”
on packing slip posting as per default configuration of project group, system will park cost of material delivered to “WIP – Material” which is delivered but not posted to Profit & Loss Account.
Journal Entry on posting of “Packing Slip”
WIP – Products Accounts Dr $113,800.00
Finish Goods Inventory Cr $113,800.00
Step – 8 : Now time to Post “Revenue Recognition”
As we know in Fixed price Project Revenue Recognize based periodical basis. Based on percentage completion of project.
up to this stage we have delivered material of Activity 1, 2 & 3. Cost of this material was $113,800.00 and Budgeted Full Cost was $180,220.00 means we have delivered material 63.15% of total budgeted cost. So now it’s time to recognize revenue related this material.
So Revenue should be 63.15% of Fixed price which was $251,258.00 it means we have to recognize revenue $158,656.98.
So, Let’s Run “Estimation”
it’s system auto calculated percentage completion and revenue recognition.
On posting of this Estimation system will pass following entry:
Cost of Project Account Dr $113,800.00
WIP – Product Account Cr $113,800.00
WIP-Invoice Dr $158,656.98
Revenue Account Cr $158,656.98
This will post COGS of Project and Revenue of Project, which is not invoiced yet.
Now as per terms with customer we can issue Invoice as we have already achieved Two Milestone.
Step – 9 : Update Milestone in Project Contract
Go to “Project Contract” and “Update Milestone Status”
Step – 10 : Generate Invoice Proposal
After update in Status now Finance or Sales person can generate “Invoice Proposal”
As you can see I have also adjusted advance received from customer as he does not required to pay amount up to advance provided. As you can see there is retention amount also available as we have set “Retention Rule” in Billing rule.
Step – 11 : Now Finance or Sales Person can post invoice.
Following journal will pass on posting of invoice:
Accounts Received Account Dr. $108,040.94
Accounts Receivable – Retention Dr. $ 17,588.06
WIP-Invoice on Accounts Cr. $125,629.00
As you can see, System has bifurcated Total amount of Invoice after adjustment of Advance into “Normal Receivable” and “Retention by customer”.
Step – 12 : Receipt of Amount;
Receipt of amount is normal process you can post payment journal on receipt of amount from customer.
Step – 13 : Repeat transaction up to fully completion of Project
Deliver – estimation – Invoice
Step – 14 : once all transaction over now it’s time to recover “Retention Amount” from Customer.
In System special functionality same as advance – Request Customer for Retention Amount.
On click it will show you total invoice you have issued and retention amount on each invoice.
As you can see there is list of invoice on which retention available. Now we will generate last Invoice Proposal for request to release retention and post it.
It will pass following journal:
Accounts Receivable – Domestic Dr. $ 25,125.80
Accounts Receivable – Retention Cr. $ 25,125.80
($ 17,588.06 + $ 7,537.74)
So now all Invoice posted and amount will be collected based on payment terms.
Now You can see the “Profit & Loss Statement of this Project’
All my blog posts reflect my personal opinions and findings unless otherwise stated.
Leave a Reply