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Revenue Recognition for Contract Billings

If a customer signs a 12 month contract on June 10 for consulting services, and you assume the work begins that day, for June you have earned 20 days of revenue. Mgmt want to bill an equal amt. each month starting on July 1. Your system creates Dr: A/R and Cr: Revenue, so the 20 days of revenue are hitting in July instead of June. In the final month, you will bill for an entire month but only earn revenue for 9 days (since you started on June 10 PY). Would it be ok to accrue for 20 days of revenue on June 30, leave this entry on the books for the entire year, then reverse it out in the final month of billing to reduce the revenue in that period? Reversing this entry and re-booking each month will clutter the g/l and have no different effect. Partial month or prorated billing is not an option. Any ideas are appreciated.

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

You should prepare the bill/invoice June 30 (for 20 days..and every end of month thereafter) so the revenue hits June (or the months you are preparing the invoice for)..and all your issues will go away. Indicative of a process problem? Don't make it unnecessarily complicated.

Anonymous
(N/A) |

Unfortunately, I am limited to billing the same amount each month (30 days worth) regardless of how many days revenue was earned. This is company policy, so I am not at liberty to bill for 20 days. I am trying to find the best way to work with my limitations.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Question the policy! It sucks and makes everything complicated. Unless it is a system limitation (which I doubt), there is no rationale for not being able to book the 20 days. My guess is that your management did not consult accounting and agreed on a 30 day billing.

To be honest, "company policy" (irrational) and "I am limited by" are some of my pet peeves. Whether you figure out a way (the hard way) to do this, it will occur again and you are stuck with a flawed (round about) process.

Okay....who's got a Snickers bar?

Anonymous
(N/A) |

Lol! I agree 100% Emerson. Thank you for your answer.

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