Revenue Recognition Accounting in PS Results Analysis

[Former Member]

I am trying to understand certain aspects in the accountng involved for the process of Results Anaysis. In my case, we have configured RA for revenue recognition and all is working well. We have a project that has a billing element and an account assignment element under it. Invoices go to the billing element, costs go to the aa elemet. RA key is entered on the billing element. RA calculates Revenues and COS and the billing element settles them to PA. While calculated, defered and unbilled revenue post to FI using OKG8 configuration settings. All is fine on the mechanics of this.

What I do not understand is the treatment for the actual costs. Are they supposed to be settled to PA as well? If so...then, the costs seem to double up in PA (COS from RA calculated based on the actual costs via the billing element and Actual costs themselves from from the aa element). Are the actual costs supposed to remain in the aa WBS element and not be settled? It seems unbalanced. Can anyone explain?

[Former Member · Accepted solution]

Hello,

RA is performed on top WBS element which has billing assignment. The actual costs booked on other WBS with AA on, are rolled up to billing WBS. So RA followed by settlement happens for top WBS. As such actual costs flow as COS to PA only once- during settlement of top WBS. So double entry of costs to PA is not there.

Let me know for any clarification.

Sourabh

[Former Member · Accepted solution]

Thanks for the explanation. However, what about the actual costs that remain in the aa element. If I don't settle the aa element then the WBS element continues to have a balance. Is that OK?

[Former Member · Accepted solution]

Hello,

Suppose your project structure is like this:

Top WBS-- with billing, accounting, planning assignment

WBS L1- with account assignment, planning assignment

RA is performed only on Top WBS.

Actual costs accrue to both WBS L1 and Top WBS.

When RA is performed on Top WBS, costs booked on WBS L1 are also added to the costs booked on Top WBS and total cost is taken as actual cost of Top WBS. RA valution method is generally set like that.

Settlement rule is created for Top WBS. And costs and revenue flow to FI, COPA only when settlement of top WBS is done.

Hope the above helps you.

Sourabh

[Former Member · Accepted solution]

Sourabh,

The mechanics of what you are explaining are exactly what we have. Thanks for understanding. However, where I am puzled is when it comes to the original debit of costs to the aa account assignemnt? Though the values are rolled up to the billing element for RA calculation, there is no credit that clears the aa wbs element and the cost remain there as a debit. If the initial debit of cost remains in the lower wbs element then it shows up on your P&L.

So by the end of the period after the settlement of the billing element you have in CO the following:

Biling WBS balance = 0 (Settlement to PA clears COS and Revenue respectively)

Account Assignemnt WBS balance = Debit for initial Actal Costs

Can you explain maybe how it should be looked at from the P&L stand pont as by the end of the day COS in PA and actual cost in aa WBS element represent he same thing twice.

Thanks in advance.

[Former Member · Accepted solution]

Hello,

When top WBS is settled, only two entries go to FI: WIP and Reserves. That too are eliminated when the status is set to TECO.

So the entire cost of top WBS, cumulative of costs of subordinate WBS and networks, is settled to a secondary cost element as COS. That remains in CO only.

PnL is not impacted by these transactions since entries of WIP and reserves in PnL get eliminated.

Of course, the balance of subordinate WBS is not zero since no credit happens here. But that is not of any concern. The balance of Top WBS should be zero for project closure.

The cost transferred to PA is only that of Top WBS -- no cost is transferred to PA from subordinate WBS since they are not settled.

I hope i am able to elaborate more on your concerns.

Sourabh

[Former Member]

Hi,

Settlement process involves a sender object and a receiver object. Receiver object is the cost object on which actual cost incurred in the sender object is settled. RA is one of the receiver objects for settlement, but not the only one.

Your scenario seems to be periodic calculation of WIP (result analysis) and final settlement of production orders.

The periodic WIP (RA) postings done in FI are reversed and replaced with COGM when the production order is finally delivered. The entries in FI at this stage is based on the "Standard Price" maintained in the material master (depending on the valuation variant). Then the final settlement of production order takes place and the total actual cost is arrived at. The difference in cost between "actual cost" and standard price" is settled to RA as a separate entry.

The reversal of entries when the production is delivered (as explained above) ensures that cost is not reckoned twice.

Hope this explanation meets your requirement.

If so, you may like to close the thread. Otherwise, please revert.

Muraleedharan.R