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Calculating earned verse unearned revenue

Matt Capozzi's Profile

For the monthly close how would I accurately estimate my earned/unearned revenue adjustment given the following situation:

We are currently on a cash basis so our revenue fluctuates dramatically with our cash flow. Ten days into this month and I have 151 jobs with revenue and some of the cost has been incurred while others have not due to varying payment schedules with our customers.

There are too many projects to sit down with the managers and get an idea of percentage of complete for the contracts.

We aren't a small company but we aren't large which is making this process difficult. We are using Quick Books but we have no earned quantities being utilized by our field or office teams.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

With 151 jobs, you really should be on accrual.

I disagree with your statement that "There are too many projects..." Assuming your company grows, you'll completely lose the ability to manage all aspects of your business unless you start now. It actually sounds like you have.

Use a SaaS based system, get team buy-in and have them enter the appropriate Time & Expenses, etc. Use Project Costing.

Also you need to determine how you bill your clients. Are you billing them by % of Completion, Flat rate, T&M?

Matt Capozzi
Title: Controller
Company: Brogan Landscaping
LinkedIn Profile
(Controller, Brogan Landscaping) |

Wayne, I did initiate a process to sit down with each manager and review the progress of each project and it was taking up so much of the managers time it actually caused major issues with getting the work planned out and completed. Part of the problem causing the massive amount of time is that we don't have a quantity based system giving us work complete for the projects so the managers have to explain whats been done and then I match that up with cost reports. It's tedious but all we have at this point. I am currently looking for new software and will most likely go with Asset by a company called Include.

Our customers are on a variety of billing methods. 6, 8, or 12 month equal payments, lump sums, T&M and pay per service. The pay per service and T&M are not requiring adjustments because cost and revenue are matching.

Part of the issue is the lack of project costing. No equipment costing or quantities being submitted.

Matt Capozzi
Title: Controller
Company: Brogan Landscaping
LinkedIn Profile
(Controller, Brogan Landscaping) |

I am afraid that I will be waiting until we get a new software system that can handle quantities being submitted for work completed that gives you earned revenue. This would translate into a WIP for all the uncompleted projects and can be used to adjust the P/L revenue for earned and unearned income.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I think think I answered your other question about software.

I mentioned Xero and check out 3rd party software

QBE and Ajera are also other options.

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