In BQE CORE, Revenue Recognition ensures that income is recorded when it is earned, providing a true reflection of project progress and financial performance in accordance with ASC 606. If you have enabled Revenue Recognition and set Billed + WIP as your method, here is how it works for progress-based contracts vs. Time & Materials (hourly) contracts.
For Time and Materials (T&M) contracts, revenue is typically recognized as work is performed. When the Generate WIP Revenue project rule is enabled, CORE automatically records revenue as soon as billable time or expenses are entered. These entries are automatically compiled into daily journal entries to recognize revenue prior to billing. These are later reversed when invoices are generated, ensuring that recognized revenue aligns with actual billing. You also have the option to recognize revenue at the time of billing by not adding the Generate WIP Revenue rule to your T&M projects, if needed.
For progress-based (percentage, milestone, etc.) contracts, ASC 606 requires that revenue should be recognized as performance obligations are satisfied, either over time or at a point in time, based on the transfer of value to the client.
CORE supports two main options for handling revenue recognition for progress-based projects:
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Recognition upon billing (most common):
You need to first make sure that the Generate WIP Revenue rule is not added to these projects. Then, revenue is recognized when an invoice is generated based on the percentage of project completion. For example, if a project is 50% complete, 50% of the total contract value is billed and recognized as revenue. This method ties recognition directly to billing milestones and aligns with ASC 606’s principle of recognizing revenue as obligations are fulfilled. -
Recognition prior to billing (less common, requires manual journal entries):
Progress-based projects typically do not have associated time and expenses that CORE could automatically recognize as WIP revenue. Therefore, when revenue needs to be recognized before invoicing, such as when a deliverable or milestone has been achieved, you need to use manual journal entries. This ensures that financial statements reflect progress even before billing occurs, maintaining compliance with ASC 606’s requirement to recognize revenue as performance obligations are met. Here again, you need to make sure that the Generate WIP Revenue rule is not added to the projects. Our Delivery Team can advise you on the standard practices to follow in this case.
Some contracts might not fit neatly into either the progress-based or T&M categories. In such cases, it is up to you to determine which approach best aligns with your accounting policies and project structure.