Time and project reports: Current fixed price projects
Do you use Kleer's function for fixed price projects?
Then we have a report for you where you can follow this up! See everything about the fixed price project report below.
We invoice at a fixed price, right? Or� How does it actually work?
Fixed price can be confusing. For the accountant, thoughts about revenue recognition start to spin, but for the consultant working in the project it is not at all what they are thinking about. To explain the report, we first sort out the concept of fixed price and how it actually works in Kleer!
The concept of fixed price, what does it actually mean?
Fixed price sounds so simple! We always charge a fixed price for our services, right? It is not always quite that simple. How you charge your customers affects your accounting, and so do the ways of working in the projects, and together this ends up in how you are allowed to recognise your revenue.
Fixed price
Put bluntly, you can say it like this: for the projects you invoice at a fixed price, you have agreed a certain price for carrying out the project and that is what applies. Then whether you work fewer hours than planned in the project, or more, simply affects your margins but not what you invoice the customer. If you do any work that is not agreed, you charge for it on ongoing billing alongside.
Ongoing billing
If you work on ongoing billing, you probably have an agreed price per hour and simply invoice for the time you spend on the project.
Arenât there different rules, what actually applies?
The main rule and the alternative rule are concepts used in revenue recognition and when it comes to projects. Assignments carried out on ongoing billing can only be recognised under the main rule, but for fixed price projects you can decide on either the main rule or the alternative rule.
The main rule
The main rule is also called successive profit recognition and means that revenue is recognised in the income statement as the work is performed, regardless of when the invoice is sent.
The alternative rule
Under the alternative rule, revenue and costs are recognised when a project is completed. Ongoing projects are in the meantime booked in the balance sheet until they are finished. Only then are the revenue and costs for the project booked in the income statement.
How do we choose a rule?
If you work with fixed price projects, your auditor is an excellent contact to discuss which set of rules suits you in particular. After all, it is your auditor who audits and approves the principles in connection with the review of your annual accounts. However, you are always allowed to switch to the main rule. But if you have had the main rule and want to follow the alternative rule instead, you need to meet special grounds. Contact your Kleer consultant or auditor if you have questions about how you accrue your revenue.
What does it mean if we use fixed price in Kleer?
The fixed price module in Kleer itself supports fixed price under the main rule, that is, successive profit recognition. Fixed price under the alternative rule is handled manually in the system, usually in connection with the year-end closing.
How does it work?
1. Invoicing plan
You set up an invoicing plan in Kleer in the project you have created. In this invoicing plan you choose the invoice date, product and so on, and can preview the invoice you have created. You can create several invoices for different periods ahead, which are then part of the plan. You then also see a summary for the invoicing plan.
The invoice is created automatically when it is time to authorise and send it, based on the invoice date chosen in the invoicing plan. When the invoice is authorised, no revenue is booked. The whole amount excluding VAT is booked on account 1470. The revenue will only be booked in the income statement when time is reported on this project in Kleer.
2. Enter a revenue budget
Enter a revenue budget for what you have agreed with the customer that you will invoice at a fixed price. Then it is easier to follow up how far you have come in the project and how you stand in the number of hours spent. It simply becomes easier to see whether you have made a spot-on estimate of hours, costs and revenue.
3. Report time
You must report the time spent on the project in Kleer and be careful about it. It is as you report time that the revenue is recognised.
What is recognised as revenue, and when?
What will be recognised as revenue is the customer invoice price of the activity you report hours on. Look at whether you need an activity of its own for fixed price, to control what is to be recognised for each hour worked. Because revenue is booked when the hours spent are authorised, it is important to reconcile continuously how you are doing. Then you can see whether you are taking too large or too small revenue in relation to the agreement already now, and whether there is a need for write-ups or write-downs.
What happens when the project is completed?
When a fixed price project is completed, it needs to be closed. Only then can you make a final assessment of whether the project has made a profit or a loss, and whether you need to make further write-ups or write-downs in the project to close it.
If you write down the project, too much revenue has been recognised in relation to what you have invoiced, and because the fixed price applies, it means that the revenue needs to be adjusted down.
If you write up the project, you have more revenue to collect from what has been invoiced, as you have reported fewer hours than estimated in the agreement.
What does the report for current fixed price projects show?
The report shows all current fixed price projects. These projects also add up what is on account 1470 in the balance sheet.
Difference between invoiced amount and recognised amount
The amount shown here is the recognised amount minus the invoiced amount. The figure shown in the view should correspond to the balance on account 1470 in the balance sheet.
If the amount is negative, you have invoiced more than has been recognised as revenue.
If the amount is positive, you have recognised more revenue than has been invoiced.
Invoiced
The amount corresponds to what has been invoiced to the customer on the project, based on the invoicing plan.
Use Revenue Budget
This column shows the revenue that has been booked in connection with time being authorised in the project.
Total budget
The amount is taken from the revenue budget entered in the project.
Who can see the report for current fixed price projects?
Finance managers
Finance manager is the role for the person who should be able to see everything in Kleer, often the CFO, the CEO or a finance administrator. That permission includes this report too.
Full read access
Your auditor, potential investors and board members. There can be people around your company who should be able to see all the accounting and all the information, but not be able to do anything administrative in the system. They see all parts of the system, and therefore this report too.