The Project Accounting 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 managing 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:
These three accounts will handle all accounting for the invoicing and revenue recognition of the fee:
Here’s an example of the fee in a project:
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:
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.
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
Service fee example 2
If you have a deferred revenue tracking issue related to project-type business activities, consider using Project Accounting to manage the whole process.