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Fixed Price Projects: On-Account Postings and Revenue Recognition in Dynamics AX / D365 F&O

1 October 20243 min read
Dynamics 365 Finance & OperationsD365Project AccountingFixed Price ProjectsRevenue RecognitionOn-AccountTime and MaterialBilling Rules

A common challenge with fixed-price projects in Dynamics AX and D365 F&O is that when invoicing, costs post to a single WIP – On Account GL account with no ability to specify project category. This means all revenue types (items, hours, expenses) are lumped into one GL posting, whereas the business may need to recognise revenue into separate GL accounts for parts, labour, and expenses.

Time and Material projects handle this granular revenue recognition well, but they don't natively support invoicing the customer a fixed quoted amount.

The Problem

When a fixed-price project is invoiced, it posts to WIP – On Account with only one GL account option. There is no way to break the revenue down by transaction type. The Production + Profit matching principle for estimates was explored but did not resolve the issue.

Verified Solution: T&M Project with On-Account Billing

The recommended workaround is to use a Time and Material project type combined with on-account features to manage the customer invoice profile separately from internal cost and revenue matching.

Step-by-Step Approach

  1. Use on-account for client billing with the line type Milestone. This is the invoice the customer receives, aligned to your billing contract rules, milestones, and timing.

  2. Make the line property of the T&M elements chargeable and consume those as normal (hours, items, expenses).

  3. When items have been consumed, run an invoice proposal to check the number. Ideally, the value of all T&M lines will equal the on-account invoice already issued. If not, add an additional positive or negative on-account line to balance.

  4. Cancel the proposal and add an on-account line of type Deduction to the value of the T&M lines.

  5. Run the proposal again and include the on-account line(s) not yet included. The result should be a zero-value proposal.

  6. Post the invoice for zero value. The on-account amount will be removed by the deduction line, and the chargeable T&M lines will realise revenue in the ledger at a detailed level.

Key Considerations

Using a T&M project type instead of fixed-price means you lose the ability to create Estimate projects and some default accrual options. However, you gain detailed revenue recognition based on cost lines posted.

Whether you run contract complete or percentage of completion projects does not significantly affect this approach. You can either point costs at P&L via the project group (then recognise the revenue side to match via the T&M invoice) or point costs at the balance sheet.

The Post Costs function is also available to move costs between P&L and the balance sheet if required, though these must be managed and released manually.

In summary: use T&M features to manage internal cost and revenue matching, and on-account features to manage the customer invoice profile only.

See also: Billing rules in Microsoft Learn

Source: Fixed price projects: On-Account postings and revenue recognition – Dynamics 365 Community