Understanding and Using Revenue Recognition

⏱️ 4 minute read

Forecast's Revenue Recognition feature is built to provide an accurate distribution of revenue regardless of budget type, as well as a portfolio-level overview of revenue.With this feature revenue from T&M or Fixed Price projects can be broken down month over month and also by task, phase, or person. Months can be locked as revenue is reconciled in accounting records. 

While Forecast will always provide suggested amounts for revenue recognition, users with the appropriate permissions can also manually input amounts for revenue recognition if needed. 

• Check out Manual Revenue Recognition to learn more. 

This article covers:

• Understanding Revenue Recognition
• Accessing Revenue Recognition
• Reviewing Revenue Recognition
• Managing your Revenue Recognition Accounting Period

What Is Revenue Recognition?

Revenue recognition is a generally accepted accounting principle (GAAP) that stipulates how and when revenue is to be recognized. The revenue recognition principle, using accrual accounting, requires that revenues are recognized when realized and earned, not when cash is received.

For Time & Materials projects, revenue recognition is relatively straightforward because revenues can simply be recognized according to the date of the time registration or expense they are based on.

With Fixed Price projects and retainers, total revenue being fixed means the value associated with a given piece of time or work is relative to the whole and subject to change. Say total revenue is fixed at $10,000. If the total scope is 10 hours, one hour of work would have $1,000 associated with it. If the total scope expands to 20 hours, that same one hour of work would have only $500 associated with it. For more examples, check out Revenue Recognition for Fixed Price Projects. 

Accessing Revenue Recognition

In Forecast you can view and use Revenue Recognition by heading to your project’s Financials page.

To access Revenue Recognition

1. Click Projects in the top bar. 
2. Select All Projects from the dropdown. 
3. Open the project you wish to access.
4. In the left side panel, click Financials. 
5. Select Revenue Recognition.

Reviewing Revenue Recognition

The Revenue Recognition screen is divided into three tables. For information on the specific categories and calculations, please hover on row text for tooltips.

• Revenue Recognition: Provides an overall summary of the revenue recognized for the project including:
  • Total Revenue Recognition
  • Time
  • Expenses
  • All Costs
  • Estimated profit
  • Estimated profit (%)
• Time revenue recognition: Provides an overview of the time revenue for the project, including:
  • Time manual revenue recognition
  • Suggested time revenue recognition
  • Time cumulative % complete
  • Billable time
  • Variance and adjustment
  • Time costs
• Expenses revenue recognition: Provides an overview of the expenses for the project, including:
  • Expense revenue recognition
  • Expense cumulative % complete
  • Expense costs

Managing your Revenue Recognition Accounting Period

In Forecast, you have the ability to manage your accounting period for projects with revenue recognized. Locking a month ensures that the revenue for that month will be recognized and it will not spill over into the following months. We suggest as part of your monthly process to lock the revenue. By doing this, the revenue recognition for that month in the Revenue Recognition tab and Details tab will remain fixed at that value and will be grayed out. For Fixed Price projects, future months will recalibrate based on the remaining time budget across unlocked months.

• Lock revenue recognition on a month if you have reconciled the revenue for that month and wish revenue to remain fixed.
• Unlock revenue recognition on a month if you want revenue to be dynamically updated or manually updated.

To lock revenue

1. Click Projects in the navigation ribbon.
2. Select All Projects from the dropdown. 
3. Open the project you wish to lock revenue for. 
4. In the left side panel, click Financials. 
5. Select Revenue Recognition.
6. Hover to the left of the month you need to lock. 
7. Click the lock icon that displays.
   
    
8. Confirm the action by clicking Lock Revenue. 
   

To unlock revenue

1. Click Projects in the navigation ribbon.
2. Select All Projects from the dropdown. 
3. Open the project you wish to unlock revenue for. 
4. In the left side panel, click Financials. 
5. Select Revenue Recognition.
6. Hover to the left of the month you need to unlock. 
7. Click the lock icon that displays.
8. Review the Unlock Revenue message.
9. The toggle defaults to Clear manual revenue recognition. How you opt to handle clearing manual revenue recognition depends on why you are unlocking the month.
   • Clear manual values if you are unlocking the month to make changes to the project's recognized revenue. 
   • Do not clear manual values if you are unlocking a month and you do not need to change the recognized revenue. 
10. Click Unlock Revenue. 
    

Related Articles

• Manual Revenue Recognition
• Revenue Recognition for Fixed Price Projects and Retainers