Revenue Calculation: Percentage Complete Performance Obligations

When the revenue recognition rule on a performance obligation is percentage complete, the revenue calculation can produce accrual or deferral postings along with recognition postings. Revenue is posted to the sales account with the offset to the accrued revenue GL account defined on the performance obligation line of the revenue contract.

Analysis codes are also taken from the performance obligation line.

Any accrual postings use the revenue calculation effective date to find any necessary exchange rates; for example, the statutory currency exchange rate. When the accrued revenue is later recognized, the reversal posting uses the exchange rate of the original accrual posting.

When using the percentage complete recognition rule, you must assess what percentage of a performance obligation has been completed. The revenue calculation then takes the percentage completed and compares it to the amount of the performance obligation that has been invoiced. The revenue calculation then creates deferral, accrual, and recognition postings based on this comparison.

• Invoiced amounts up to the completed amount are recognized and recognition postings are created, moving revenue to the sales revenue account.

• Invoiced amounts over the completed value are deferred and deferral postings are created, moving revenue to the deferred revenue account.

• Amounts that have been completed above the invoiced amounts are recognized and accrued and postings are created, moving the revenue to the accrued revenue account.

• When the performance obligation has been fully invoiced and marked as fully complete, all revenue is then recognized and the accrued revenue and deferred revenue accounts are cleared.

In cases where there is more than one performance obligation line on a performance obligation, percentage completed value is apportioned across the performance obligation lines.

Example: A performance obligation is created on a revenue contract, as displayed in Percentage Complete – Fully Invoiced. The sales order line is for $14,000. The performance obligation is marked as being 80% completed. The sales order line is then fully invoiced. However, because only 80% has been completed, only $11,200 can be recognized. The remaining $2,800 is deferred.


Performance Obligation	Sales Order Line
Total Value	14000
Percentage Complete	80%
Percentage Invoiced	100%
Value Recognized	11200 (80%)
Value Deferred	2800 (20%)

Example: Again, a performance obligation is created on a revenue contract, as displayed in Percentage Complete – Partially Invoiced. The sales order line is for $14,000. The performance obligation is marked as being 80% completed. The value completed is $11,200. The sales order line is then partially invoiced at 50%. Because 50% has been invoiced, only 50% can be recognized to the sales revenue account.

Because 80% of the contract has been completed, the other 30% (80% - 50%) of the revenue is recognized from the accrued revenue account.


Performance Obligation	Sales Order Line
Total Value	14000
Percentage Complete	80%
Percentage Invoiced	50%
Value Recognized	7000 (50%)
Value Accrued	4200 (30%)

A performance obligation is created on a revenue contract and there are three sales order lines, as displayed in Percentage Complete – Fully Invoiced with Multiple Sales Order Lines. The total value of the performance obligation is $14,000 and it is marked at 80% complete. The performance obligation is then fully invoiced. The percentage completed value is recognized and apportioned across the performance obligation lines.


Performance Obligation	Total	Sales Order Line 1	Sales Order Line 2	Sales Order Line 3
Total Value	14000	9000	4000	1000
Percentage Complete	80%
Percentage Invoiced	100%
Value Recognized	11200 (80%)	7200	3200	800
Value Deferred	2800 (20%)	1800	800	200