Hi Richard,
Thank you for your post. I'd like to start by providing the following information that we have around Project Types, Accounting Methods, and some questions to ask yourself when selecting one for your project. Please let me know what questions linger after reviewing this:
Project Types:
- Time and Materials - The customer is billed for project costs as they are incurred. The amount that the customer is billed is based on billing rates or markup percentages for time, materials, equipment, etc used for the project.
- Cost Plus - The customer pays for actual project costs plus a fee. Each billing invoice is for a percentage of the final total that is calculated using forecast budget amounts. As costs rise for the project, your company’s profit remains the same..
- Fixed Price - The customer pays a predetermined amount for the entire project. Each billing invoice is for a percentage of the predetermined total billing amount. As costs rise for the project, your company’s profit decreases.
Accounting methods:
- When Billed- Revenue is recognized for a Time and Materials project that uses the When Billed accounting method when you post a billing invoice for the project. The Cost of Goods Sold account will be updated on the Profit and Loss Statement and the Work In Progress account will be updated on the Balance Sheet.
- When Performed -Revenue is recognized for a Time and Materials project that uses the When Performed accounting method when you post a cost transaction for the project. The Cost of Goods Sold account will be updated on the Profit and Loss Statement. Unbilled Project Revenue and Unbilled AR accounts are used.
- Completed - Revenue is recognized for a Cost Plus or Fixed Price project that uses the Completed accounting method when the project status has been changed to Completed and you post a revenue recognition transaction. The Project Revenue account will be updated on the Profit and Loss Statement.
- Cost-to-Cost - Revenue is recognized for a Cost Plus or Fixed Price project that uses the Cost-to-Cost accounting method when you post revenue recognition transactions for the project. Revenue will be determined by comparing total actual project costs to total forecast project costs.
- Effort-Expended - Revenue is recognized for a Cost Plus or Fixed Price project that uses the Effort-Expended accounting method when you post revenue recognition transactions for the project. Revenue will be determined by comparing total actual project quantities to total forecast project quantities.
- Effort-Expended Labor Only - Revenue is recognized for a Cost Plus or Fixed Price project that uses the Effort-Expended Labor Only accounting method when you post revenue recognition transactions for the project. Revenue will be determined by comparing total actual time quantities entered on timesheets to total forecast time quantities for the project.
What is the right setup for you?
- Questions to ask yourself when deciding how to set up your project:
Need to bill individual cost transactions
Need to use rate tables
Be able to do trade discounts
Have revenue recognized when the cost transaction is posted or billed
Be able to use service fees
Don’t want to have to budget costs
Need to make cost transactions non-billable (N/B) or no charge (N/C)
Need to budget in an originating currency
-- If any of the above are Yes, then you would want to use Time & Materials
Calculate billing as % of completion
Be able to use retention fees
Recognize revenue as a separate process
-- If any of the above are Yes, then you would want to use Fixed Price/Cost Plus
Often times we get asked for “milestone billing” or billing for a certain % of the total project amount. For example they want to bill 20% at the start of the project, 40% after 6 months and the final 40% at the completion of the project. Let’s say the project amount is $12,000. Many people try to set this up as a Fixed Price project because they know the price (project amount of $12,000); however their cost transactions may not follow the 20-40-40 percentages that they want to bill.
Instead of using Fixed Price, it might make more sense to set up the project is TM and bill using a fee. Then they would schedule the fee with the appropriate amounts. For example $2,400 on Feb 1st, $4,800 on August 1st and the remainder when the project is completed.
I hope this information helps.
Best Regards,
Nicole Sutton
Senior Support Engineer
Microsoft Dynamics GP