Hello, Good to be back here on the blog !!! Jumping straight into topic here today about a new addition of a feature for vendor prepayments in relation with fixed price project revenue recognition !!
Issuing large amounts of prepayments to vendors is often a common business requirement for large scale, long term fixed price projects, which involves a lot of sub-contracted work. Vendors often request prepayments for the subcontracting services they are contracted to deliver for these projects. These prepayments can sometimes be just a flat amount based on mutual decisions, or it can sometimes be a percentage of the total cost of the subcontracting service. There can be several months of gap between when the prepayments are issued and when the vendors actually delivers the services.
For such projects, customers usually recognize revenue on a percentage completion basis and need the ability to include these vendor prepayments in the project percentage completion calculation of the project for revenue recognition/revenue estimates calculations.
In this post, we will evaluate one of the new features of Dynamics 365 For Operations (Referred as D365 – Operations from here on), which allows to consider these vendor prepayments automatically when running the monthly revenue recognition/estimates for fixed price projects for calculating the % completion of the project.
For this demonstration, I have setup a fixed price project and the associated contract already. This project is setup to recognize revenue on a % completion basis.
The Project Manager has created and submitted the purchase requisition for approval, so that the services can be procured from Rebar Supply Co. Ltd. See screenshot below.
The purchase requisition gets approved by the designated manager and the Purchase order is automatically crated. See screenshot below.
The Project procurement team/Project manager then sets up the prepayment details on the project purchase order that was automatically created upon approval of the requisition.
Finance and Accounting team now processes the prepayment invoice to initiate the prepayment to the vendor.
Now that the finance team has processed the vendor prepayment for the subcontracting work, let us now go ahead and see what happens when they run the monthly revenue recognition process for this project.
Notice that system was able to consider the vendor prepayment cost for the project and was able to determine the percentage completion based on the total project budget/forecast defined. See screenshot below
When this revenue recognition entry is posted, the revenue amount (based on Percentage complete and the total contract value) will be posted to general ledger. We all know how it works from here
That’s it for today !!
Sandeep Chaudhury **
Tagged: Dynamics 365 For Operations, Dynamics AX, Fixed price project, Percent Complete, Prepayment, Revenue recognition, Vendor Prepayments