Tim Mclellan, a partner in B2B CFO, talks about how to recognize revenue as part of your accounting procedures.

1. Revenue Recognition Accounting
aka Percent of Completion
Presented By
Tim McLellan, CPA
B2B CFO®

2. Revenue Recognition
• Allows the income and expense to be
recognized on jobs as costs are incurred,
instead of when job is billed.
• Large variation in monthly financial
performance is possible if rev rec not used.
• Banks and Bonding Companies generally
require it.

3. Rev Rec Calculation
Total Costs to Date
------------------------ X Contract Price = Revenue
Total Estimated Costs Recognized

4. Over/ Under Billing Calculation
Rev Recognized - Total Billed = Over /Under Billed
Two Examples
$120 Earned - $100 Billed = $20 Underbilled (Asset)
$120 Earned - $140 Billed = $20 Overbilled (Liability)

5. WIP Schedule
• WIP = Work in Progress
• WIP Schedule calculates:
– Total amount of Revenue Earned
– Compares Revenue Earned to Amount Billed and
calculates Over / Under Billing Amounts

6. Mid Month Review
1. Look for items that are significantly underbilled.
Probably can be billed in current month.
2. Look for items where the amount billed > contract
price. Change order not booked.
3. Look at jobs that have been totally billed for several
months, but actual costs < estimated.

7. Month End Review
1. Look for items where the amount billed > contract
price. Change order not booked.
2. Look at jobs that have been totally billed for several
months, but actual costs < estimated.
3. Compute the Over / Under Billing Adjustment

8. Recording Over / Under Billing Amount
1. Reverse previous month’s entry.
2. Record current month entry.
Amount Underbilled = Asset
Amount Overbilled = Liability
Remaining Amount = Dr/ Cr to Revenue

9. Backlog
• Revenue Backlog = Total Contract Price –
Revenue Earned
• Billing Backlog = Total Contract Price –
Amount Billed

10. Questions?
Tim McLellan, CPA
tmclellan@b2bcfo.com
(404) 915 – 5539
www.b2bcfo.com