Determining the stage or percentage of the transaction and how much of it is complete and what remains to be completed is one thing. It\u2019s another, although not completely unrelated, to record the transactions in accounting. Under \u201ctransactions\u201d I mean not only the revenue, but also receivables and liabilities.<\/p>\n
The initial basis for any accounting record is usually either an agreement or an invoice. When performing services over a longer period and using stage of completion, you\u2019re most likely bound to an agreement. This agreement defines the services, quantitative aspects if applicable and what\u2019s more, it also sets out the payment schedule and if any conditions are related to those invoices.\u00a0<\/p>\n
Obviously you\u2019re sending out invoices as per the agreement, debiting accounts receivables and crediting sales revenue in the amount.<\/p>\n
At each period end you should however measure the stage of completion percentage and accordingly adjust your revenue. For an example if you\u2019ve issued invoices in a bigger amount as compared to what you should recognize in revenue, you should account the difference accordingly:<\/p>\n
Db\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Sales revenue<\/p>\n
Cr\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Deferred sales revenue<\/p>\n
This \u201cdeferred sales revenue\u201d has been invoiced (and possibly also paid by the client), however not yet earned as in you haven\u2019t provided services for the amount.<\/p>\n
However, if you\u2019ve issued invoices in a smaller amount as compared to recognized revenue using the stage of completion method, you would account it as follows:<\/p>\n
Db\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Accounts receivables<\/p>\n
Cr\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Sales revenue<\/p>\n
Essentially, if you\u2019ve invoiced less than your recognized revenue, it\u2019s a receivable on your statements and if you\u2019ve invoiced more compared to recognized revenue, it\u2019s your liability.<\/p>\n","protected":false},"excerpt":{"rendered":"
Determining the stage or percentage of the transaction and how much of it is complete and what remains to be completed is one thing. It\u2019s another, although not completely unrelated, to record the transactions in accounting. Under \u201ctransactions\u201d I mean not only the revenue, but also receivables and liabilities. The initial basis for any accounting […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,39],"tags":[],"class_list":["post-4694","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-11-revenue"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=4694"}],"version-history":[{"count":1,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4694\/revisions"}],"predecessor-version":[{"id":4695,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4694\/revisions\/4695"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=4694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=4694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=4694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}