Handling earned revenue in excess of billing

'Earned revenue in excess of billing' or 'earned income before billing' are financial accounting concepts wherein you recognize revenue or income before actual billing. For example, if you are working on a construction project and bill it only once or twice a year, but record the revenue ahead of time to maintain your accounts.

Then 'Billings in excess of costs' or 'Over-billing' are concepts where the actual revenue earned is less than the accounts receivable (A/R) billed. Typically, this is shown as a liability on the company's financial statement until the revenue is collected.

From an accounting transaction point of view, CORE recognizes revenue/income or loss based on accrual or cash system of accounting.

  • If you want to recognize the revenue when the client actually pays the invoice, this is considered the cash method.
  • If you want to recognize the revenue when the invoice is sent to the client, this is considered the accrual method.
  • If you want to recognize revenue outside of the standard accrual or cash method of accounting, you can make journal entries to record such transactions or adjustments. 

Although we recommend that you consult your accountant or CPA before deciding to use these accounting concepts, CORE does support them. This is how you can handle them in CORE:

  1. Create an invoice for your client from the Invoices screen when you want to bill first. This debits your Accounts Receivable and credits your revenue account.
  2. Create a billed/unearned account (typically a liability account) on the Chart of Accounts screen.
  3. When you want to delay the revenue earned till a further date, make a journal entry in General Journal to debit your revenue account and credit your billed/unearned account.
  4. When it’s time to recognize revenue, make a journal entry to debit your billed/unearned account and credit your revenue account.

CORE automatically reduces your Accounts Receivable as you receive the payment from client. 

Check out this reference article.

Was this article helpful?
3 out of 5 found this helpful