Phased revenue recognition, as described outlined in IFRS 15, is mainly used for primarily applied to long-term contracts, such as those in construction where a project construction projects that extend over an extended period, like building a villa spans over 12 months. This Under this approach involves recognizing , revenue and costs according to are recognized progressively based on the contract’s progress completion stage rather than just when invoices are issued. Although solely upon invoicing. While partial revenue can be recognized recorded as a contract asset, it can't cannot be recorded classified as receivables until all contractual obligations are fulfilledmet. Only after this then can an invoice be issued and recognized.
This method is not limited exclusive to construction firms but companies; it also applies to service companies providers with long-term contracts. Instead of recognizing revenue and costs only at the time of upon invoicing, this approach allows revenue can be recognized based on the progress of the contract, reflecting various stages to be recorded in alignment with the contract's progress, capturing different phases of completion.
To set up phased revenue recognition, you need to:
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On the Main tab, you can enter general information such as the customer, contract, project, and other relevant data. Key fields include:
The Revenue and Costs tab is a critical component for managing revenue recognition. This tab allows us to handle both the revenue and the associated costs for the work items in a phased manner. The tab consists of two main panes: Services and Work Costsusers to list and manage items for revenue recognition in phased contracts. It includes two panes:
- Services Pane: Lists work and service items for revenue recognition. Users can specify item details, quantities, discounts, and recognition percentages.
- Work Costs Pane: Displays associated costs for listed services, with options to view costs from previous recognition phases.
This tab helps track recognized revenue and costs based on contract progress, ensuring accurate financial reporting.
The Services Pane allows adding and managing Work/Service items with details like quantity, price, discounts, VAT, and optional characteristics. Additionally, some more fields need to be filled i.e.
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For ongoing projects, enter beginning balances for work-in-progress and contract assets—track costs with appropriate documents and reports. When recognizing revenue for a completed phase, use Phased Revenue Recognition documents to account for costs and revenues.
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