Project Cycle
·
Raising a Project Quotation – with estimates of Items, Expense
and Hour
·
Converting Project Quotation to Project, after contract
·
Item Requirements
·
Posting Consumption and Recognizing costs
·
Recognizing Revenue
·
Invoice to Customer
Raising Project Quotation:
Before creating a project in the system, a project quotation
is raised. This is again based on the business requirement of the firm.
A Project Quotation includes the estimates for Raw materials
(items), Time (hour) and Overheads (expenses) along with the costs and
revenues. Once the terms are agreed at, the quotation is converted to a Project.
Converting project quotation to Project
Once the quotation is approved, a Project is created.
Projects can be directly created in the system as well, based on the
requirement.
When a Project is created from a quotation, all the details
from the quotation are copied into the Project
Items have to be purchased before consumption.
(Otherwise is also possible if Negative Inventory is allowed. However, it is
better to have physical inventory before consumption to recognize costs
appropriately)
Hour and Expenses can be directly booked in the system
Item Requirements
The item requirements are fetched from Project Quotation
where applicable. In case of directly creating a project, the Item Requirements
must be defined.
Path: Project Management >> Common >> All
Projects >> Select Project >> Item Requirements in Manage tab
Purchasing Items: Item Requirements >> Functions
>> Create Purchase Order
Once PO is created, Confirm > Receive > Invoice the PO
The Accounting:
Inventory dr
To Accounts Payable (vendor account) cr
Posting Consumption and recognizing costs
Item Consumption happens through a Project Sales order.
Whenever a Purchase order is created for item requirements, a Sales Order is
simultaneously created for the Project.
Considering that there is no requirement to Purchase the
Required item for the Project, a Sales Order is created when the Item
Requirements are raised in the system.
To view the Sales Orders, go to Project >> Item tasks
>> Sales Orders
Here the Sales Order has a status “Open Order” and Type “Item
Requirement”. Further, all options for confirmation, picking, packing and
invoice are disabled in the form. This is because the SO is not actual sales to
Customer, but a consumption posting for the Items to be consumed for the
Project.
Note: Sales Orders of type “Item Requirement” can only be
created and posted from within the project and not otherwise.
The item consumption is posted in the system by posting a
packing slip for the respective sales order, from within the project.
Path: Item Requirement >> Posting >> Post Packing
Slip
Once the Packing Slip is posted for the Item, the Status of
the SO changes to Invoiced. Also, there is no Unit Price or Net Amount on the
Lines for the Item Consumption, since this is not booking any liability to the
customer.
The Accounting:
Project Cost
account dr
To WIP Cost account cr
WIP – the concept:
WIP is a system parameter. It indicates costs/ revenues that
have not yet been accrued. In the case of a Project, the entire cost is not
consumed at once and it is periodic, until such point that the revenue is
recognized. When the Revenues are recognized, the costs are recognized at
actuals.
In case the business does not wish to have a WIP account, the
costs can be directly mapped to the actual Cost account.
Sales Category:
Sales can either be processed for a Sales Category or an
Item. Each Category is associated with one or more Items.
While processing a Sales Order, user can either process for a
sales category or for an Item. When a Sales Category is updated, the system
does not allow to select the Item. However, when the item is selected on the
Lines, the sales category is auto-populated where applicable.
The Accounting – for Category sales:
Customer
account dr
To Sales Category account cr
The Accounting – for Item sales:
Customer
account dr
To Item Sales account cr
Recognizing Revenue
Revenue recognition is a process wherein the Business decides
to “recognize” or identify the revenues in the system. It is different from
actual sales in the sense that there is no Invoice posting that happens at
recognition. It is a system process for businesses to conclude as to the
revenue that the project will bring. It is a kind of Estimation of revenues.
The Accounting:
WIP Revenue
account dr
To Actual revenue account cr
Revenue estimation can be done for the entire revenue or for
a part of the Revenue based on the project completion and the milestones for
the project.
Let’s say that the total revenue expectation for the project
is $100,000. This entire revenue can be recognized at once or in slots (equal
or otherwise)
Estimating a 10% revenue will create an entry of $10,000
against the project. Estimating at 50% will create an entry of $50,000 against
the project.
Invoice to Customer
The customer invoice is where the actual sales is posted in
the system for the project.
The Accounting:
Project
Customer (person or organization) dr
To WIP revenue account cr
Happy Learning..
