Implementation > Revenue Recognition in WorkBook

There are different areas in WorkBook where you can set up specific posting rules for particular types of records. This article covers the 3 x common revenue recognition principles achieved via Settings > Posting configurations. Variations are possible on each of these options; this article only seeks to outline common agency principles.

For the purposes of this article, all forms of VAT, GST or Sales Tax are referred to as ‘Tax’.

POSTING CONFIGURATION: WIP BASED (PERCENT COMPLETE)

Summary

In summary, the WIP based posting configuration keeps sales and purchase invoices on the Balance sheet until job closure. Whilst the job is open, time and materials post to WIP accounts on the P&L (credit) & Balance sheet (debit). At the end of each month, every job is then assessed against the estimate and an adjustment can be made to write the percentage of completion up or down from the expenditures incurred. Adjustments are also posted to WIP accounts on the P&L and Balance sheet.

When the job is closed all WIP is reversed and all of the sales and purchase invoices are posted from the balance sheet WIP accounts to the result accounts in the P&L.

Postings

Creditor Invoice – Job Open 

Transaction Example:  $100 (incl tax) vendor invoice  

Open

Balance Sheet Postings 

P&L Postings 

N/A

Progress (Sales) Invoice - Job Open 

Transaction Example:  $3100 net invoice, $310 tax, $3410 (incl tax)

Open

Balance Sheet Postings 

P&L Postings 

N/A 

WIP - Time Entries & Materials Entries – Job Open 

Transaction Example:  Time entries summing $1955 in sales value

Balance Sheet Postings 

 P&L Postings 

 WIP – Month End % Complete Adjustments – Job Open 

At the end of each month, the progress of the job is assessed against the price quote through a ‘WIP Adjustment’.

In the example below, the person assessing WIP would review the costs incurred for time (and sometimes purchases) against the price quote. The system will suggest a percent complete based upon actuals (pink) /price quote (green), then based upon their knowledge of project progress, the person assessing WIP can adjust the percent complete or the actual revenue to date (orange) to create a write-up or a write-down. This is called a WIP adjustment.

Transaction Example: Write off: $1083.65 

Balance Sheet Postings 

 P&L Postings 

 Transactions Summary – Pre-Closure 

Account number starting with 1 = P&L

Account numbers starting with 2 or 3 = Balance sheet

The WIP transactions are indicated below.

Job Closure Postings

All WIP is reversed at job closure, with the sales and purchases posting to the result accounts.

WIP accounts are indicated in orange with the final balance showing as zero, indicated in pink. The job closure posting result accounts are indicated in green.

Job Closure Balance Sheet Postings 

Job Closure P&L Postings 

In the month of closure,

if there are no values sitting on the balance sheet (WIP) for the job to be closed, all reversal entries will nett of to $0 and no financial impact in the month of closure.

If there is a value left on the balance sheet (WIP) for the job to be closed, this value will be the difference once all transactions have been reversed, which will give you a $ impact to your P&L for the month equal to that value. For the example above on closure an extra $2137.74 will be taken to gross profit. (Sales invoice $3100 - COS $90.91 - WIP Revenue/Hours adjustment $871.35)

Operations in Practice

This is an option for those agencies who prefer to recognize net revenue via invoicing but want to ensure their income on pass-through costs is aligned to the cost of sales hitting the P&L. There are some considerations with this method, as (depending on your version) it may limit your ability to use other features in WorkBook such as consolidated invoicing or the retainer module.

POSTING CONFIGURATION: INVOICE BASED (OPERATING)

Summary

The operating method would not see any WIP accounts, with all transactions posting directly to their result accounts.

Postings

Creditor Invoice – Job Open or Closed

Transaction Example:  $100 (incl tax) vendor invoice  

Balance Sheet Postings 

P&L Postings Add instructions here

Progress (Sales) Invoice - Job Open or Closed

Transaction Example:  $3100 net invoice, $310 tax, $3410 (incl tax)

Balance Sheet Postings 

P&L Postings 

Operations in Practice

This is a less common way of operating in WorkBook. It is best suited to small to medium agencies or to agencies where the billing relating to both clients and suppliers very closely aligns with the project progress.

POSTING CONFIGURATION: GROSS PROFIT ON INVOICE

Summary

This method is set up by combining a company variable with your posting configuration. Sales and Purchase invoices will go directly to the balance sheet, and additionally, WorkBook will automatically create a revenue accrual for the net revenue value of the invoice when it is raised.

Postings

Creditor Invoice – Job Open

Transaction Example: $100 (incl tax) vendor invoice

Balance Sheet Postings

P&L Postings

N/A

Progress (Sales) Invoice - Job Open (Results in billing and WIP postings)

Transaction Example: Invoice of $16750 net sales, $4250 of which is gross profit (net revenue), + $1675 sales tax. Invoice incl. tax is $18425.

Balance Sheet Postings

P&L Postings

N/A

Automatic Revenue Accrual (WIP Adjustment) Postings

Balance Sheet Postings

 P&L Postings

Transactions Summary – Pre-Closure

Account number starting with 1 = P&L

Account numbers starting with 2 or 3 = Balance sheet

The WIP transactions are indicated below.

Job Closure Postings

All WIP is reversed at job closure, with the sales and purchases posting to the result accounts.

WIP accounts are indicated in orange with the final balance showing as zero, indicated in pink. The job closure posting result accounts are indicated in green.

Balance Sheet Postings

 P&L Postings

 Transactions Summary – Post-Closure

Operations in Practice

This is a popular process for agencies who have a higher cost of sales, and whose billing relating to clients very closely aligns with the project progress.

In practice, using this configuration may limit your ability to leverage other system functions such as the retainers module, consolidated invoicing, and others. It is recommended to fully discuss this option with a consultant prior to implementation.

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