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Project Accounting

Complex Billing and Revenue Recognition

Solution

VISIBILITY Project Accounting

Solution Benefits

• Seamless revenue recognition

• Project life cycle profitability

Customer Background

Located in Eastern United States, this customer manufactures state of the art automatic warning and control systems for mass transit. These products are designed and configured to meet specific customer requirements.

Key Challenges

• Progress billings for long term projects

• Revenue recognition in every month

• Actual cost collection by job

• Comparison of Actual Costs to Budget

Detailed Challenges

This customer operates its business on a project basis managing and delivering activities outside the normal product costing models. There are typically a handful of projects in process at any one time, yet they can be sizable and often last one to two years. Unable to carry the financing on these projects (which often represent up to a quarter of their annual revenue), the customer employed progress billing to maintain cash flow. This periodic invoicing cycle takes place throughout the project and is driven by the achievement of pre-defined contractual conditions. This fundamental business model created havoc for their traditional accounting systems linked to the enterprise resource planning (ERP) system.

As a direct result of progress billing, the customer was challenged by revenue recognition. This activity was crucial since the revenue had to be tracked in the same accounting period as the expense in order to remain in accordance with Generally Accepted Accounting Principles.

The customer based inventory values and project cost on an actual costing model which required collecting all the actual costs and comparing them against the original project estimate. Due to the lengthy cycle of projects, it was essential that the customer constantly track the financial progress at each stage of the project.

Solution Details

Seamless revenue recognition - Using VISIBILITY Project Accounting, the customer was able to address the issues of progress billing and revenue recognition integrating Sales Orders, Work Orders, Purchasing, Labor Distribution, Accounts Payable and Accounts Receivable as a seamless workflow. At present the customer is able to review the actual cost and revenue each month and then recognize revenue with the touch of a button.

Project life cycle profitability - The system posts to the proper accounts for progress billings, revenue recognition and cost. VISIBILITY’S Project Management modules help the customer track profit margins throughout the life cycle of the project and to precisely account for the estimate to complete the project.

By taking advantage of the integrated nature of VISIBILITY, this customer was able to handle the unique costing and progress billing issues faced by many Engineered Product Manufacturing businesses. By automating calculations and journal entries, manual efforts were significantly reduced resulting in faster, easier month-end closes and on-line views into revenue and profits.