Fixed Price percentage completion Contract with Milestone Billing – Full Cycle

Project Type : Fixed Price Percentage Completion – with work in progress

Billing Rule : Milestone

Project group Setup:

Project Group Setup
Fixed Price Percentage Completion Project Group Setup

Project Transaction Summary:

Activity Sub activity Type Description  Qty  Cost / Unit  Cost Value  Sales / Unit  Sales Value
1 1.1 Item Item-001               12.00               140.00              1,680.00                 168.00              2,016.00
1 1.2 Item Item-002               25.00               900.00           22,500.00             1,246.00           31,150.00
2 2.1 Item Item-003               25.00               420.00           10,500.00                 630.00           15,750.00
2 2.2 Item Item-002               25.00               900.00           22,500.00             1,246.00           31,150.00
2 2.3 Item Item-001               32.00               140.00              4,480.00                 168.00              5,376.00
3 3.1 Item Item-002               43.00               900.00           38,700.00             1,246.00           53,578.00
3 3.2 Item Item-003               14.00               420.00              5,880.00                 630.00              8,820.00
3 3.3 Item Item-001               54.00               140.00              7,560.00                 168.00              9,072.00
4 4.1 Item Item-003               76.00               420.00           31,920.00                 630.00           47,880.00
4 4.2 Item Item-002               23.00               900.00           20,700.00             1,246.00           28,658.00
4 4.3 Item Item-001               54.00               140.00              7,560.00                 168.00              9,072.00
5 5.1 Services Ser-001               24.00                  90.00              2,160.00                 126.00              3,024.00
5 5.2 Services Ser-002               48.00                  85.00              4,080.00                 119.00              5,712.00
Total  1,80,220.00  2,51,258.00

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.

Billing Rule-1Billing Rule-2

Lets also set Retention term as it is practice of retaining some portion of amount by Customer up to completion of contract.

Billing Rule-3

Now we can set Project Stage  as Release / In progress

Project Stage

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”

Advance-1Advance-2

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

System Journal:

Advance-3

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

System Entry:

Material Receipt-1

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

System entry:

Material Receipt-2

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

System Entry:

Material delivery

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.

Estimation

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.

System Entry:

Estimation-1

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” 

Status

Step – 10 : Generate Invoice Proposal

After update in Status now Finance or Sales person can generate “Invoice Proposal”

Invoice-P

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

Invoice-I

As you can see, System has bifurcated Total amount of Invoice after adjustment of Advance into “Normal Receivable” and “Retention by customer”.

Invoice-II

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.

Retention

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)

Retention-i

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’

PL

Disclaimer:
All my blog posts reflect my personal opinions and findings unless otherwise stated.

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