Loss occurs when a job or project has expected costs that exceed expected revenue. If you are using the Project Level feature and the Percentage of Completion (POC) revenue recognition method, you can recognize loss for a job or project as soon as a loss is anticipated, regardless of when the costs will incur.
The Loss Recognition feature allows you to automatically or manually choose jobs and projects that are in a loss position and create a journal entry to accrue expected costs. If you want see how billing amounts are affected by the loss, you can also choose whether to include billings in the loss recognition journal entry.
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Example
A job has the following amounts:
| Expected Contract |
|---|
| Forecast Cost |
|---|
| Posted Cost | POC | ||
|---|---|---|---|
$2,500 | $2,000 | $1,000 | 50% |
Contract Earned (POC x Expected Contract) =$1250 (50% x $2,500)
Anticipated Margin (Expected Contract - Forecast Cost) = $500 ($2,500 - $2,000)
When an additional $1,000 in cost is anticipated, and a change order cannot be obtained, a forecast revision is posted.
| Expected Contract |
|---|
| Revised Forecast Cost |
|---|
| Posted Cost | POC | ||
|---|---|---|---|
$2,500 | $3,000 | $1,000 | 33% |
These extra forecast costs affect the POC and contract earned, resulting in a loss for the period.
Contract Earned (POC x Expected Contract) =$833.33 (33% x $2,500)
Margin to Date Loss (Posted Cost - Contract Earned) =$166.67 ($1000 - $833)
In addition to the loss for the current period, the job is in an overall loss position, based on the anticipated margin and the costs that are yet to accrue.
Anticipated Margin (Expected Contract - Revised Forecast Cost) =$500 loss ($2,500 - 3,000)
Cost to Accrue (Anticipated Margin - Margin to Date) =$333.33 ($500 - $166.67)
Example continued - with billings
If you choose to include billing amounts in the loss recognition, the loss recognition journal entry will also reverse the under billed/costs in excess (CIE) amount or the over billed/billings in excess (BIE) amount that is caused by the loss.
In the example above, the original Over/(Under) Billed amount is calculated as follows:
Over/(Under) Billed (Contract Earned - Billed) = $83.33 under billed ($833.33 - $750)
After the loss is recognized, the Contract Earned amount is adjusted:
Adjusted Contract Earned (Anticipated Margin Loss Posted Cost) = $500 (($500) $1,000)
The Adjusted Contract Earned amount is used to calculate the new over/(under) billed amount. Even though the job was previously under billed, the adjusted contract earned is now less than the billed amount:
Over/(Under) Billed (Adjusted Contract Earned - Billed) = $250 over billed ($500 - $750)
The adjustments to the CIE and BIE are recorded to indicate the difference between the new amounts and the amounts that are currently in the POC table.
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- Choose Microsoft Dynamics GP > Tools > Setup > Job Cost > Account Setup > Revenue Accounts. The Revenue Recognition Account Setup window opens.
- Choose a Division, then use the Revenue and Exp Accounts button to open the Revenue and Exp Account Setup window.
- Provide account numbers for the following:
- Costs of Loss Recognition: The account for the cost expense (debit amount) in loss recognition journal entries.
- Accrued Costs\Costs in Excess: The account for the accrued costs or Costs in Excess (credit amount) in loss recognition journal entries.
- Billings in Excess: The account for the Billings In Excess (credit amount) in loss recognition journal entries.
- When you are finished, choose Save.
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Complete the following steps to include a job in the loss recognition journal entry for the current period.
If If the job is assigned to a project that is marked for loss recognition, the job cannot be marked. An entry will be created for the project.
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The Loss Recognition Edit List allows you to view details for the jobs and projects that will be included in the loss recognition journal entry. Before month end, you can use this edit list to forecast the loss for the period and view the effect that the loss will have on the current month's Profit & Loss Statement.
If you are automatically choosing jobs and projects for loss recognition, they will be included when the edit list is printed.
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When you open a closed job, and that job is in a loss position, the job will be included in the next loss recognition entry.
When you open a closed Job Cost fiscal period, the Loss Recognition Entry for the period is reversed, along with the POC Entry. When the period is closed again, the Loss Recognition journal entry must be posted again, along with the POC entry.