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Title: Can I adjust project revenue with a Journal Entry? What are the best practices and effects on reporting?

Brief description:

Project revenues are recorded systematically through the Billing & Revenue Post and Customer Invoice creation processes, which will create system-generated Journal Entries. 

Manual Journal Entries, on the other hand (created from the Financials > General Ledger > Journal Entries menu), should only be used to record revenue to projects under extenuating circumstancesThese circumstances might include tying out historical revenue on projects that have been closed for years, in order to ensure that financial revenue ties out to the previous system’s revenue. Manual Journal Entries do not affect Revenue in the Project Accounting reports (B&R Summary, Project Funding Summary, etc.). If you adjust revenue manually using a journal entry, your project reports will most likely not reconcile to your general ledger.

If under extenuating circumstances you must book revenue to a project via a manual Journal Entry, please follow the steps in Option 4 below. Please also consider Options 1-3.

What’s covered in this document:

Option 1 - Systematic Revenue Records (RECOMMENDED automatic option)

Project revenues are recorded systematically through the Billing & Revenue Post and Customer Invoice creation processes, which will create system-generated Journal Entries.

This process involves:

  1. Setting up fixed price items or labor/expense items to a project.
  2. Performing a billing and revenue post for the project.
  3. Create an invoice for internal purposes only.

This is the recommended method for recording project revenues.

Option 2 - Record a revenue JE but not to the project 

Another alternative is to record a revenue JE, but not to the project.

In this case, you would create a GL account where projects aren’t required and make any adjustment there. An example might be Manual Revenue Adjustments. Your total revenue on the GL will not tie to the total project revenues but there may be viable reasons for that to happen. You should be able to detail the difference (Manual Revenue Adjustments) when reconciling at period end.

Option 3 - Adjusting project revenue without impacting an invoice via a FP Item (Recommended for T&M/FP if automated Option 1 is not possible)

This is the best practice solution for T&M and FP projects. CP projects cannot have a FP item, so those will need to be handled with one of the other methods.

  1. Create a task in the project you want to adjust. 
  2. Mark the budget tab on the task as noted in the first screenshot below.
  3. Create a FP item for that task. 
  4. Set up the FP item as noted in the second screenshot below. (When the FP item is set up as "Bill On Completion", and the "Completed Date" is left blank, this prevents the FP item from being billed).
  5. Map the task to the GL as needed
  6. Edit the FP item monthly as needed. (Revenue accrual may be adjusted each month based on whatever parameters/calculations you choose).

Note: You may need to consider how to show this as a separate line in the JSR. One option is to create a separate project so that it can be included or excluded on the JSR. 


Task Budget tab:

Navigate: Project > List > List > Edit Pencil Icon > Budget. 


Fixed Price Item edit:

Navigate: Project > List > List > Edit Pencil Icon > Billing > Fixed Price. 


Task Accounts screen:

Navigate: Project > List > List > Edit Pencil Icon > Tasks > +Paper Icon. 


Option 4 - Create the JE against an Expense Type associated with the Project (NOT RECOMMENDED)

Note this option is not  recommended, as there is room for error. It should only be done carefully and only under extenuating circumstances.

Recall that any manual Journal Entry to a Project requires an Expense Type.

INITIAL SETUP:

  1. Create an Expense Type
  2. Map that Expense Type to the correct GL revenue account.
  3. Ensure that the GL revenue account associated with the Expense Type has "Transactions Require Projects" checked. 

  4. Create a Cost Element
  5. Map the Expense Type to the Cost Element
  6. Add the Cost Element into the Cost Report definition on the revenue line as a negative. This is because Unanet is mapping this item into the Cost Report expecting a cost (a debit balance account) but what we are attempting to adjust is revenue (a credit balance account).
  7. For example: [Revenue::Total (Net)] - [Cost::JE-EXPENSE-TYPE-REVENUE]  (See screenshot below).
  8. Make sure this Cost Element is included in the line that goes to your revenue and funding report.


ONGOING PROCESS:

  1. Record JE using Expense Type above and designating a Non-Billable Project Type. 
    1. It must be booked using a non billable Project Type unless it is a FP contract (FP contract revenue is not based on transactions). The transaction/Expense Type used to book Revenue must be recorded as non-billable so that it doesn’t attempt to recognize revenue via the typical method for the project’s billing type. Also, if a billable project type is used on a T&M and CP Billing Type project, it will be posted to unbilled and will show up on an invoice.

      Navigate: Admin > Setup > Accounting > Cost Reports. 


Why we do not recommend Option 4

Manual Journal Entries do not affect Revenue in the Project Accounting reports (B&R Summary, Project Funding Summary, etc.). 

The following are reports where revenue will NOT be accurate if a JE is made to the project: 

Navigate: Reports > Dashboard. 

Other reports will contain confusing or inaccurate information because Unanet is treating these amounts as costs.

For example:

Navigate: Reports > Dashboard > Summary Reports > Performance. 


Effects on Deferred Revenue and Unbilled AR

By adjusting revenue manually, via a Journal Entry, the normal system-driven revenue earnings process is circumvented. As a result, deferred (unearned) revenue and unbilled AR may also not be correct. The entries created by the standard billing and revenue posting process are noted below. By going outside of the standard Unanet process, it could create additional reconciling items that will need to be captured and documented at each period close.

Deferred revenue, sometimes called unearned revenue, is cash received in advance of delivering services or goods. Because there is an obligation to render services or deliver goods in the future, it is a liability to a company. For example, if a company collects a two-year software subscription from company A for $100,000.00 on December 31, 2014, then recognized revenue on December 31, 2015 would be only for $50,000.00.


System Created Debit and Credit entries.

The entries for cash receipt should be:


12/31/14            Cash                                                                              $100,000.00

                           Unearned Subscription Revenue                                  $100,000.00


For Recognized revenue:


12/31/15             Unearned Subscription Revenue                                  $50,000.00

                            Subscription Revenue                                                  $50,000.00


In the event when billing is in excess of recognized revenue or recognized revenue is in excess of billing, the following journal entries will be recorded.

Recognized revenue is for $30,000.00, but amount billed is only for $20,000.00.

AR Billed                                                               $20,000.00

Unbilled Receivable/WIP                                      $10,000.00

Recognized Revenue                                            $30,000.00    


Recognized revenue is for $20,000.00 but amount billed is for $30,000.00.

AR Billed                                                               $30,000.00

Deferred revenue                                                  $10,000.00

Recognized Revenue                                            $20,000.00


However, when we run the billing and revenue post in Unanet, both Unbilled Receivable/WIP and Deferred revenue discussed above are booked to Deferred Revenue. Therefore, the account specified to post the deferred revenue to can be either an asset or liability account and should normally be set up based on the expected balance of the account. This account category can be set up to post to the Unbilled account if needed, although it is not considered to be best practice as it does provide some differentiation only to unbillable part of unbilled revenues in the case discussed above. Since it is not known whether the amount will be positive or negative, and it could swing back and forth between the two balances, the best practice for creating final financial statements would be to do a reclassifying journal entry to an asset or liability account to correct the balances to the balance sheet.


Additional Information

Help Docs - Journal Entries

KC - Recurring Journal Entries

KC - Journal Entries

KC - Expense Account setting "Transactions Require Project"



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