Time based progress analysis in project system (revenue recognition) sap blogs

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Harvey Gocuay
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Time-Based Progress Analysis in Project
System (Revenue Recognition)
February 25, 2015 | 3,139 Views |
PLM Project System (PS)
measurement method | product costing | progress analysis | results analysis | revenue recognition | sap project systems
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In customer projects, contracts are generally awarded in 2 parts: (1) the
construction / delivery of a product / service, and (2) the subsequent service or

product maintenance.
In this document, I will discuss on the usage of the Results Analysis from
perspective of integration between SAP Project system and other modules, in
particular Sales and Distribution and Costing. This document will discuss on
the Revenue Recognition and Project Billing.
The scenario is based on a customer project which uses Project System for
delivery of product service and maintenance contracts. In particular, it will
focus on the second part revenue recognition for the service or product
maintenance using time-based method of revenue recognition.
The project is first set-up using a project template for customer project. The
project structure will vary from customer to customer. But, just for simplicity
purposes, the document presumes two WBS elements for the project
structure: (1) the delivery of product/service and (2) the maintenance project.
Scenario: A company sends an invoice to a customer for a 12-month
maintenance contract of SG$ 100,000.00. The revenue recognition is based
on time-proportionality on the validity of the maintenance contract.
Accounting Flow:
From accounting requirement, the revenue should be amortized over the
period of the maintenance contract. One way is to leverage on the Results
Analysis in Project system and its integration with the billing in Sales and
Distribution.
Below is a sample illustration of the revenue recognition based on time-
proportionality.
Table 1. Revenue Recognition and Project Billing
The billing is done at the start of the contract, a total of 100,000.00 for the
whole maintenance contract.
A. Customer 100,000.00
Cr. Project Revenue 100,000.00-

However, the full-amount cannot be recognized on January since the service
is for the 12-month period and has not yet been delivery. The revenue will
need to be recognized over the contract duration based on the time lapsed.
The remainder should be accounted as Unearned or Deferred Revenue in the
Balance sheet account. Over-time, the unearned or deferred revenue will be
reduce and recognized as revenue based on the time lapsed.
In SAP Project System, there are several setting involved. I will discuss the
two important setting:
1- Measurement Method (Time Proportionality)
As per SAP’s definition, this measurement method determines the percentage
of completion proportional to the time required. The system assumes linear
project progress over time.
Figure 1. Setting for measurement method
2- Results Analysis Key
The Results Analysis Key determines how the valuation of revenue and costs
will be calculated for the WBS element. It is powerful tool and can be
configured in a number of ways. It is not the intention of this to explain each
field but to highlight only certain items in the valuation method.
The RA type and Profit Indicator will need to use Earned Value and
Percentage of Completion. This will allow the system to calculate the
POC% over the period of time.
The Progress version needs to be defined as well from which the
progress analysis data is stored.
Plan version is also important in determining from which CO Plan
Version to pull the Plan Revenue / Plan Cost. It is recommended to use
the CO version for results analysis.

Figure 2. Partial Screenshot of the RA Key setting
Note: there are other settings that need to be done; the intention of the
document to illustrate functional-wise the use of time proportionality.
Process-Steps
The subsequent discuss the master data set-up and transactions involved for
the revenue recognition and project billing.
I. Master Data set-up:
The master data set-up is determines largely how the valuation for the WBS
element is calculated. The appropriate fields need to be set at the master data
level in order for the month-end programs to calculate the values correctly.
1- Results Analysis Key
It is required to set-up the WBS element in the template project structure. The
WBS element must contain a results analysis key to define how the accrual or
deferral of revenue is to be recognized in a project.
Figure 3. RA Key in the WBS element master data

      2- Progress Version and Measurement Method
In SAP help, project progress is stored in the CO version 100 – Progress
Version. It is stores and records the progress analysis data. An important field
is to be maintained is the measurement method. The measurement method
defines how the progress is determined.
Figure 4. Measurement method in WBS element
      3– Plan Revenue / Plan Cost
Plan revenue and costs needs to be defined as well. This is determined from
the setting in the Results Analysis for valuation. This means that the plan
value needs to be defined in the correct CO version.
Figure 5. Plan Revenue
      4- Basic Start / End Date / Actual Start Date
In SAP setting, the dates in the master data need to be defined to calculate
the overall duration of the project. The system also factors in the factory
calendar in order to determine the total number of working days.

It is possible to base the progress on Planned POC or Actual POC. For
planned POC, basic dates need to be maintained. For actual POC, actual
dates are maintained and final confirmation is required. In this example, the
setting is using Planned POC.
Figure 6. Dates in WBS element master data
II. Sales Document (Contracts)
For maintenance contracts, business development generally requires to know
several dates such as contract start/end date, contract duration, other dates
(such as acceptance date), and other information (such as Renewal,
Termination)
In the SD, it is recommended to use the Contracts Order type as it provides
the needed fields without extensive customization. These info can be stored at
the Sales Order (Contract) for retrieval and useful for operation.
Figure 7. Contract Information in Sales document

In addition, the billing plan in the sales order manages the billing terms to the
customer. The billing cycle can be yearly, quarterly, or monthly and other
information such as start of the month, end of the month can be defined in this
area. These can help user to easily manage the information in the Sales order
for project billing. For the purpose of this example the project billing is yearly.
Figure 8. Billing Plan
At the time of Invoicing, the accounting document is also automatically
generated for the Sales Contract.
A. Accounts Receivable 100,000.00
Cr. Sales
100,000.00-
III. Month-end Closing Steps:
At month-end, the following transactions need to be executed in sequence in
order to calculate the Recognized Revenue and Unearned Revenue
1- CNE1 – Calculating the Project Progress
This step measures the project progress based measurement method defined
in the WBS element. The project progress result is stored in the progress
analysis version “100”.
2- KKA2 – Calculating the Project Revenue and Cost
This step valuates the WBS element according to the setting of Results
Analysis.
Month 1
Refer to Table 1, in the results analysis screen, users will be able to see the
following:
POC % of 8.23%. Calculated based on the cumulative number of days /
total duration
Planned Revenue is 100,000.00 (from the plan revenue)
Actual Revenue is 100,000.00 (from the project billing)

Revenue Affecting Net Income is 8,235.00 (from the POC % x Plan
Revenue)
Figure 9a. Results Analysis (January)
On the same screen, the Results Analysis will also calculate the inventories
(WIP / Revenue In Excess of Billing) and Reserves (Accrued Expense / Billing
in Excess of Revenue).
Billing in Excess of Revenue of 91,756.00 which goes to Unearned Revenue
or Deferred Revenue
Figure 9b. Results Analysis (January)
Month 2
Refer to Table 1, in the results analysis screen, users will be able to see the
following:
POC % of 16.08%. Calculated based on the cumulative number of days
/ total duration
Planned Revenue is 100,000.00 (from the plan revenue)
Periodic Actual Revenue is 0.00 (from the project billing)
Revenue Affecting Net Income for the period is 7,843.00. Cumulative is
16,078.00.

Figure 10a. Results Analysis (February)
On the same screen, the Results Analysis will also calculate the inventories
(WIP / Revenue In Excess of Billing) and Reserves (Accrued Expense / Billing
in Excess of Revenue).
Billing in Excess of Revenue is reduced to 83,922.00, which is
equivalent to the 7,843.00 recognized for the month.
Figure 10b. Results Analysis (February)
1. 1- CJ88 – Transferring the Recognized Revenue and Cost to Financial
Accounting
After executing the results analysis for valuation, settlement needs to be
performed to transfer the valuation results to the General Ledger.
Month 1
The accounting entry for the settlement will be as follows:
Dr. Project Revenue – BIER 91,756.00
Cr. Deferred Revenue – BIER
91,756.00-
Net P/L recognized for the period will be as follows:
Project Revenue 100,000.00

Alert Moderator
Project Revenue – BIER 91,756.00-
Net Project Revenue 8,235.00
Month 2
The accounting entry for the settlement will be as follows:
Dr. Deferred Revenue – BIER 7,843.00
Cr. Project Revenue – BIER
7,843.00-
Net P/L recognized for the period will be as follows:
Project Revenue 0.00
Project Revenue – BIER 7,843.00-
Net Project Revenue 7,843.00
7 Comments
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Thank you for a good document.
Paulo Vitoriano
February 25, 2015 at 9:40 am

Hi All,
Kindly help us .
The POC value in KKA2 is coming as zero, even though we have maintained the
progress analysis version.
Please let us know the mandatory steps which needs to be performed, and also please
tell us whether any user exit was involved for this purpose.
Regards,
Ramprakash
Hi Ram Prakash,
You’ll need to ensure the following is set:
1- The master data setting in the WBS element is properly maintained (RA Key,
Dates, Progress Version, and WBS element Status)
2- Plan values (Revenue and Cost) are properly maintained
For the month-end steps, the following steps need to be executed to calculate
the POC%.
1- CNE1 – Project Progress
2- KKA2 – Results Analysis
3- CJ88 – Settlement
In the sample WBS, there is no user exit used.
Regards,
Harvey
Ram Prakash V.
April 20, 2015 at 5:51 pm
Harvey Gocuay Post author
April 22, 2015 at 8:59 am

Dear Ram Prakash,
In this case POC determine by Progress analysis
Check Progress analysis configuration like Value category, St
Key figure,
cast element.
Regards
Deepak
Dear Harvey,
It is realy good work
Regards
Deepak
Deepak N M
April 22, 2015 at 12:01 pm
Deepak N M
April 22, 2015 at 12:10 pm
Hi, Harvey Gocuay
Amazing scenario have you posted and very useful customizing items related through
RA, SD and PS.
Currently I am customizing RA functionality based costing, appreciate a lot if you can
you provide me some information items about like exercise have you been posted
above, related ” The revenue recognition is based on time-proportionality”
Thanks in advance
Jose Lagonell
April 25, 2017 at 9:33 pm

Dear Harvey,
Recently I’ve been assigned to implement the PS customer project via the RA approach.
And I’ve found this info is helping me a lot.
Thanks a lot!
Ahmad Syukri Ibrahim
October 5, 2017 at 7:06 am
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