Unbilled Receivables and Unearned Revenue Accounting in Oracle Projects

Introduction

When it comes to contractual billing, invoice and revenue generation are two separate processes, which during the lifespan of a project may or may not always coincide with each other and so do the balances in revenue and receivables accounts.  This interim difference between revenue and invoice account balances is bridged using Unbilled Receivables (UBR) and Unearned Revenue (UER) Accounts.

Unearned Revenue (UER)

Unearned Revenue (also termed as deferred revenue or UER) signifies money received for the goods or services, which are yet to be delivered.  As per the principles of Revenue Recognition,

UER is recorded as on the balance sheet unless it is converted to Revenue upon delivery of goods or services

For Example

XYZ Consulting Ltd. receives an annual maintenance contract of $ 12,000 on Dec 31, 2014 for the period of Jan 01, 2015 to Dec 31, 2015.

At the start of the contract as of Dec 31, 2014 company will have a receivables balance of $ 12000 but the entire amount is yet to be earned and will be recorded under as a liability on its balance sheet.

During end of each month in 2015, XYZ will move $ 1000 from UER account to Revenue account on its income statement. 

Unbilled Receivables (UBR)

Unbilled Receivables (also termed as deferred revenue or UBR) signifies income /revenue that cannot be invoiced to the client pursuant to the terms of the contract or in other words

UBR is recorded as an on the balance sheet and generally monitored closely by business in terms of aging and exchange rate related losses/gains. 

For Example

XYZ Consulting Ltd. gets a milestone-based contract of 12000$ on Dec 31, 2014 to build a website. Total contract value is split into four equal quarterly instalments, with first payment milestone on March 31, 2015.

Let us assume on March 31, 2015, XYZ has already finished 50% of the work but because of the contractual terms it can raise an invoice up to 3000$ only, so rest of the 3000$ will be parked under Unbilled Receivables.

UBR/UER Accounting in Oracle Projects

            

Oracle Projects Billing (PJB) provides separate programs for revenue accrual and invoice generation so that they could be run independently and thereby cater to various kinds of billing methodologies such as Fixed Price, Time and Material, Milestone Based, etc.

To ensure that Revenue and Receivables accounting can happen independently of each other, PJB creates a set of accounting distribution lines during each process.

Each set of distribution lines contains accounting lines for along with those for Revenue (if Revenue is being generated) or Receivables (if invoice is being generated).

During Invoice Generation

Account Distribution lines generated during import of Projects Invoice into Receivables module comprise of following entries –

Dr. Receivables

                                Cr. Unearned Revenue (UER) and /or Unbilled Receivables (UBR) 

Points to Remember 

• Auto accounting engine for an invoice line is run whilst it is interfaced to Receivables. Therefore, unless an invoice is interfaced from Projects to Receivables, it will not have any impact on UBR/UER balances of a project.

• For an invoice, PJB will first offset the existing balance in Unbilled Receivables Account (if any) and post the remaining amount under Unearned Revenue.

During Revenue Generation

Whilst generating revenue, auto accounting engine is run for each revenue line item (expense /event) to generate account distribution line comprising of following entries –

Dr. Unearned Revenue (UER) and /or Unbilled Receivables (UBR)

                Cr. Revenue 

                               

Please Note

• Auto accounting engine for revenue line is run during generation of Revenue Accounting Events against it. Therefore unless a revenue line has undergone SLA event generation, there will be no impact on UBR and UER balances of the project.

• System will first offset the existing balance in Unearned Revenue Account (if any) and post the remaining amount under Unbilled Receivables

Business Case

UBR/UER accounting along with that of Revenue and Receivables for the aforementioned case is explained in the grid to follow.  Whilst going through the accounting entries, take note of following points –

• In line 4, revenue accrual lead to posting in both UBR and UER accounts, wherein existing balance in UER is knocked off and remaining balance is posted in Unbilled Receivables.
• In line 5, existing balance in UBR is knocked off and rest is posted in Unearned Revenue.
• At the end of the project, respective balance in UBR and UER account is zero.
• Revenue and Receivables account balances are matching. 

 

Implementation Guidelines – UBR/UER

• Oracle Projects does not maintain UBR/UER account balances at task level, these are strictly maintained at the project level and thus there is no out of the box provision to generate UBR or UER account based on event type or expenditure type.
• Auto accounting function to derive Unbilled Receivables and Unearned Revenue will only accept project level parameters such as Project Organization, Class Code, etc.
• During Revenue generation, PJB will first knock off the existing UER balance and then only the remaining amount will be posted under UBR account.
• During Invoice generation, PJB will first knock off the existing UBR balance and then only the remaining amount will be posted under UER account.
• Whilst generating the cancellation or concession invoice, PJB will post the entire invoice amount into UBR irrespective of existing balance
• Invoice write- off will not have any impact on existing UBR/UER balance on the project.
• UER/UBR balances are always kept in the project functional currency regardless of your billing setup on a particular project.