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<ManualTopic ID="/baanerp/ti/onlinemanual/000370" xml:lang="en">
	<Header>
		<Title xmlns:ssa="http://www.ssaglobal.com" xmlns:HTML="http://www.w3.org/TR/REC-html40">Overview of interim revenue recognition in Project Control (PCS)</Title>
		<Keyword><Level1>Revenue recognition</Level1>
		</Keyword>
	</Header>
	<GeneralSection><SectionTitle>Why interim revenue recognition?</SectionTitle>
		<Paragraph>When you manufacture products using projects in <GUIRef href="/baanerp/ti/pcs" role="module" Update="No">Project Control (PCS)</GUIRef>, you often deal with long lead times. During the projects, actual costs are recorded. Revenues and Cost of Goods Sold (COGS) can be determined at the end of the project when the products are finished and delivered. However, international accounting rules, for example, IFRS (International Financial Reporting Standards) require more transparancy in business financials. Public companies must be able to recognize costs and revenues not only at the end of the project but also on different moments during the project.</Paragraph>
		<Paragraph>With revenue recognition in PCS you can determine the interim revenue and interim Costs of Goods Sold (COGS) for an unfinished project, even before shipping any end item.</Paragraph>
	</GeneralSection>
	<GeneralSection><SectionTitle>Terms</SectionTitle>
		<List><ListItemHead>Revenue</ListItemHead>
			<ListItem>The gross inflow of economic benefits such as cash, receivables, and other assets during an accounting period. Revenue results from the usual operating activities of an enterprise, for example, sales of goods, sales of services, interest, royalties and dividends.</ListItem>
			<ListItemHead>Actual costs</ListItemHead>
			<ListItem>The real costs of production, hours accounting, purchase, service, sales, finance, warehousing and/or a PCS project.</ListItem>
			<ListItemHead>Cost of Goods Sold (COGS)</ListItemHead>
			<ListItem>An accounting classification to determine the amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.</ListItem>
			<ListItemHead>Work-in-Process (WIP)</ListItemHead>
			<ListItem>The value of actual costs and results, subtracted with the COGS posted on the project. The WIP value is used for financial reporting on the balance sheet. When a project is closed, the WIP is cleared.</ListItem>
		</List>
	</GeneralSection>
	<GeneralSection><SectionTitle>Percentage of completion</SectionTitle>
		<Paragraph>If you want to know the interim COGS and interim revenues at a specific moment, you must first determine which percentage of the work on the project is completed. You can use three methods to calculate the percentage of completion (POC):</Paragraph>
		<List><ListItemHead><GUIRef href="/baanerp/ti/domains/pcs.pocm#cost" role="enum">Cost to date</GUIRef>
			</ListItemHead>
			<ListItem>The actual costs spent until a specific date divided by the estimated total costs at completion. For example, the total estimated costs of the project are $1980,-. The actual costs until the moment that you want to recognize revenue are $200,-. The POC is 200/1980 = 10,1%.</ListItem>
			<ListItemHead><GUIRef href="/baanerp/ti/domains/pcs.pocm#hours" role="enum">Hours progress</GUIRef>
			</ListItemHead>
			<ListItem>The actual hours spent until a specific date divided by the estimated total hours at completion. For example, the total estimated hours of the project are 500. The actual hours until the moment that you want to recognize revenue are 100. The POC is 100/500 = 20%.</ListItem>
			<ListItemHead><GUIRef href="/baanerp/ti/domains/pcs.pocm#manual" role="enum">Manually entered</GUIRef>
			</ListItemHead>
			<ListItem>A percentage that expresses an estimate of the completed work. For example, you estimate that on a specific moment, 25% of the work on your project is finished.</ListItem>
		</List>
	</GeneralSection>
	<GeneralSection><SectionTitle>To calculate interim revenue and COGS</SectionTitle>
		<Paragraph>To calculate the interim revenue on a specific moment, the following calculation is carried out:</Paragraph>
		<Formula><Paragraph UserLevel="Novice" UserType="Taskuser">Calculation:                                  Example:

Estimated revenue of the projects                4905
Estimated revenue variance                 +     1095
--------------------------------------------     ----
Estimated total revenue at completion            6000
Percentage of completion (POC)             *      25%
--------------------------------------------     ----
Earned revenue                                   1500
Already posted actual revenue            -/-      833
Interim revenue posted in prior periods  -/-      200
--------------------------------------------     ----
Interim revenue of current period                 467

</Paragraph>
		</Formula>
		<Paragraph>To calculate the interim COGS on a specific moment, the following calculation is carried out:</Paragraph>
		<Formula><Paragraph UserLevel="Novice" UserType="Taskuser">Calculation:                                  Example:

Estimated cost of the projects                   2000
Estimated cost variance                    +      200
--------------------------------------------     ----
Estimated total costs at completion              2200
Percentage of completion (POC)             *      25%
--------------------------------------------     ----
Earned COGS                                       550
Already posted actual COGS               -/-       90
Interim COGS posted in prior periods     -/-      219
--------------------------------------------     ----
Interim COGS of current period                    241

</Paragraph>
		</Formula>
	</GeneralSection>
	<GeneralSection><SectionTitle>Procedure for interim revenue recognition</SectionTitle>
		<Paragraph>To calculate interim COGS and revenue, you must go through a number of sessions:</Paragraph>
		<ProcedureList><ListItem><Link href="/baanerp/ti/pcs/tipcs2130m000" role="session">Project Details (tipcs2130m000)</Link>
			</ListItem>
			<ListItem><Link href="/baanerp/ti/pcs/tipcs3290m000" role="session">Calculate Interim COGS and Revenues by Project (tipcs3290m000)</Link>
			</ListItem>
			<ListItem><Link href="/baanerp/ti/pcs/tipcs3191m000" role="session">COGS by Cost Component (tipcs3191m000)</Link>
			</ListItem>
			<ListItem><Link href="/baanerp/ti/pcs/tipcs3190m000" role="session">Interim COGS and Revenues by Project (tipcs3190m000)</Link>
			</ListItem>
			<ListItem><Link href="/baanerp/ti/pcs/tipcs3291m000" role="session">Confirm and Post Interim COGS and Revenues by Project (tipcs3291m000)</Link>
			</ListItem>
		</ProcedureList>
		<Paragraph>The details are described in <Link href="/baanerp/ti/onlinemanual/000371" role="manual">Procedure for interim revenue recognition in Project Control (PCS)</Link>
		</Paragraph>
	</GeneralSection>
	<RelatedTopics><SectionTitle>Related topics</SectionTitle>
		<RelTopic><Link href="/baanerp/ti/onlinemanual/000371" role="manual">Procedure for interim revenue recognition in Project Control (PCS)</Link>
		</RelTopic>
	</RelatedTopics>
</ManualTopic>
