… continued from part (2)
F. Dynamics AX Project Processing
F.1. Record Fee Transactions For The T&M Project
After finishing all the necessary setups, project work started. The first thing that I did was recording three fee transactions for the T&M project that are used for invoicing the customer.
Please note that project fee transactions do not generate any ledger transaction at the time they are recorded through a project fee journal as no costs are related to project fee transactions.
F.2. Invoice Customer Through T&M Project
After recording the fee transactions – for reasons of simplicity and illustration – I directly invoiced the customer. The outcome of those invoice transactions can be identified in the following screenshots.
Please note that project revenue is recognized through the invoices created from the T&M project. This way of recognizing revenue is required in order to make the EV calculation work.
F.3. Record Hours & Expenses
My next steps were recording the hour and expense related transactions for the fixed price project for each of the different project stages. Example:
F.4. Mark Project Stage As Completed
After the work for each project stage was finished, the stage was marked as complete, which resulted in a recalculation of the progress percentage (POC) for the whole project.
Example: Before marking the first project stage as completed, a POC of 9,56% can be identified.
After marking the first project stage as completed, a POC of 9,7% is calculated due to the change in the remaining effort column.
F.5. Run Project Estimate
After posting hours and expenses and marking the different project stages as complete, fixed price project estimates were run and posted.
Example for running the project estimate for the first project stage:
Note: The cost template that is used here has the completion method “work in progress percentage” selected as illustrated in the next screen-print.
Result: The outcome of the estimate calculation can be identified in the next screenshot.
What you can identify from the above screenshot is the POC of 9,7% that was identified earlier in the WBS form. In addition you can identify a “contract value” of $1218000 that is identical to the planned value of the project that has been setup as the on-account milestone for the fixed price project.
Based on the POC and the “contract value”, an accrued revenue (“earned value”) amount of $118088,64 is calculated based on the following formula:
After posting the first estimate, the following ledger transactions result:
From an accounting perspective, those transactions can be interpreted as follows:
- First, the hour and expense transactions that are initially posted against the WIP cost value account do not have an influence on the company’s overall profitability as they are recorded on Balance Sheet (BS) accounts only,
- Second, the transfer of the amounts posted on the WIP cost value ledger account to the project cost account when posting the estimate reduces the company’s profit as costs are shifted from balance sheet accounts to income statement accounts,
- Third, the WIP sales value and accrued revenue posting that records the EV for the first project stage can be used for project controlling purposes to match project costs and revenues and to calculate the cost and schedule variance. As statistical accounts are used for recording this posting, no immediate effect on a company’s profitability – as reported in external financial reports – can be identified.
- Fourth, the first customer invoice posting in Feb-16 records the project revenue that is used for external reporting. This transaction together with the WIP sales value and accrued revenue transactions allow combining and analyzing projects in line with the POC (percentage of completion) and CC (completed contract) method.
F.6. Repeat Steps F3 – F5
For each project stage, repeat the steps F3-F5 until project work is finished.
… to be continued in part (4)