Revenue Recognition in Dynamics 365 Project Operations
Revenue recognition principles in Dynamics 365 Project Operations vary based on the selected billing method for a project or portion of a project. Understanding this process is essential for managing costs, growth, and ensuring precise and punctual revenue recognition.
Note: In a recent product update, estimates have been renamed to revenue recognition via the Update labels for revenue recognition and related forms and processes in Project Operations feature. Terminology may reference either "estimate" or "revenue recognition" depending on whether the feature is enabled.
Time and Material Billing Method
With time and material billing, cost and revenue recognition are connected. Transaction cost and unbilled sales are posted using the Project Operations Integration journal.
The project cost and revenue profile determines whether unbilled sales transactions are posted to the general ledger. If Accrue revenue is selected, the system uses the WIP sales value and Accrued revenue sales value accounts during posting:
| Transaction Type | Debit/Credit | Amount |
|---|---|---|
| WIP Sales value | Debit | 100 |
| Accrued revenue sales value | Credit | 100 |
Revenue is then recognised during invoicing using the Invoiced revenue account:
| Transaction Type | Debit/Credit | Amount |
|---|---|---|
| Customer balance | Debit | 120 |
| Sales tax payable | Credit | 20 |
| Invoiced Revenue | Credit | 100 |
If revenue was accrued when unbilled sales were posted, the system reverses the accrued revenue at invoicing:
| Transaction Type | Debit/Credit | Amount |
|---|---|---|
| WIP Sales value | Credit | 100 |
| Accrued revenue sales value | Debit | 100 |
Fixed Price Billing Method
With fixed price billing, cost and revenue recognition are separate. Transaction cost is posted using the Project Operations Integration journal, but unbilled sales transactions are not created.
Revenue can be recognised in two ways:
No WIP (short-term, simple projects) — Revenue is recognised during invoicing if the project cost and revenue profile has Principle used for project completion calculations set to No WIP. This method should only be used for short-term, simple projects.
Fixed price revenue estimates — Revenue is recognised using either the Completed contract or Percentage of completion revenue recognition method.
Revenue Recognition Approaches
Organisations follow different approaches to determine the percentage of revenue to recognise, including the straight-line method (revenue recognised on a prorated basis over the project duration), progress shown in the work breakdown structure, percentage of actual cost compared to total budgeted cost, percentage of actual hours compared to total budgeted hours, or any other method the project manager deems appropriate.