Phase revenue recognition
It is related to Phased revenue recognition, as outlined in IFRS 15, it is generally for long term contracts which are mainly applicable for construction company which involve applies primarily to long-term contracts, such as those undertaken by construction companies building a villa for 12 months etc
There is some rules for recognition of the revenue and cost.
Apart from construction company, it can be used by service companies as well which involves long term services contract.
According to this, recognition of revenue or cost are not only done when Invoice is issued, it could be recognized based on contract terms like stage completion.Separate GL will be used for the recognition, and eventually show as Receivable when Invoice is recorded.Do the setting-Go to general settings> enable phased revenue recognition.
Go to contract of the respective company > go to terms tab > enable Phased revenue recognition.
There is an second option use over 12 months. This method involves recognizing revenue and costs based on the progression of the contract, rather than solely when invoices are issued.
Phased revenue recognition is not limited to construction companies; it is also applicable to service companies with long-term service contracts. Instead of recognizing revenue and costs only at the point of invoicing, recognition can occur according to the progress of the contract, such as through stage completions.
To set up phased revenue recognition, you need to:
- Navigate to General Settings and enable Phased Revenue Recognition.
- Access the specific contract and go to the Terms tab to activate Phased Revenue Recognition
Additionally, if the contract involves a foreign currency, you can choose to use the exchange rate defined on the first revenue recognition date , this is used to define the exchange rate differences. If the contract is in foreign currencyto account for exchange rate fluctuations.
Two approaches can be applied depends used depending on the accounting policy, business needs, and contract agreementterms.
Revenue can be recognized based on Multiple stages, for example, each quarter, so can be view the amount at various stages, such as quarterly, allowing for periodic reviews of amounts and profit and loss quarterly.