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Wednesday, August 17, 2016

Straight Line Revenue Recognition for Dynamics AX Project Accounting & Management

Posted by Abhay Agarwal

With the release of Dynamics AX R3 CU8, Microsoft has built some great tools for straight line revenue recognition. Straight line revenue recognition uses the amortization principle where the deferred revenue is recognized based on a set timeline – whether monthly, weekly, quarterly half-yearly, etc. As a principal, deferred revenue is taken as liability on to the balance sheet account and thereafter for recognition, the deferred revenue account is debited and the revenue P&L account is credited based on above set timeline – monthly, weekly etc. Deferred revenue are usually the advance payments taken for the service to be performed and as the service is provided, the revenue is recognized or returned if the contractual obligations are terminated midterm or just according to the contract’s terms.

The Bottom Line: Dynamics AX R3 project accounting with version CU8 allows for the estimates on project to be run on the straight line method.

See How It Works

The images below illustrate the process of configuring the system for the new functionality. This functionality is available only for fixed price projects (with the actual start and end date being mandatory) on the project setup.

At the project group level following setup is required:

AX Straight Line REvenue Recognition - Project Group Set-up
Important: The revenue recognition accounting rule needs to be “completed percentage”.

Period code – Create the period code and set the desired frequency of week, month, quarter, etc. from the drop down menu.

Cost template – The setup of the cost template remains the same as it would be for any other fixed price project, however the enhancement that was brought in by Microsoft in version CU8 was the option of Straight Line Revenue Recognition for completion based on the field/calculation rule. (See below.)

AX Straight Line Revenue Recognition_Cost template
Project Revenue Posting enables users to take the initial invoice amount to the Balance Sheet, then decrementing that account and incrementing the P&L revenue account on posting of the project estimates, defined as follows:

AX Straight Line Revenue Recognition_Project Revenue Posting
WIP-Invoiced-on-account is credited on the generation of the initial invoice.

WIP-Sales Value account is debited on the posting of the project estimates.

Make sure you have the above two accounts on the same balance sheet account for a credit and debit posting.

Accrued Revenue – Sales Value is credited on posting of the project estimate. It’s relevant to have this account as the P&L revenue account for recognition of revenue at the end of the service cycle.

LEARN MORE: Interested in finding out more about straight line revenue recognition with Dynamics AX? Discover more tips and tricks throughout Armanino’s Dynamics blog or connect directly today at contact@armaninollp.com.

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