What happens if the expenses you budgeted are overrun and the agreement and transaction therein ends in a loss for your company?

Financial performance wise obviously you may see a way to change something within the transaction and service – materials to be used, less personnel, more effective approach and what not – that would be trying to achieve the goal. 

However, let’s say that you’ve considered possible options and there will still be overruns in an amount that results in a loss for you company.

In your accounting you can do only one thing – account for the loss straight away and in full amount (unless your local accounting framework allows some other method for deferring or spreading the loss over periods). This should be done regardless of whether you had started with the service in the first place, regardless what the stage of completion is and regardless that the remaining services from this agreement may end up in a profit.

Note also that the budgeted expenses may be adjusted during rendering the service; in fact to be able to determine the proper stage of completion you must adjust your expenses accordingly at each assessment of completion percentage.

If as a result you see that the budgeted expenses exceed the income from the client, you should account for the full loss immediately.