Contract line-based revenue recognition with Project operations

Applies To: Project Operations Integrated with ERP

The Contract line-based revenue recognition with Project operations feature lets you recognize the revenue for each contract line that's associated with a contract. Contract line–based revenue recognition gives you the flexibility to define a different revenue recognition method for each contract line. Microsoft Dynamics 365 Finance then generates and posts the revenue recognition amounts accordingly.

To use this feature, activate Contract line based revenue recognition in Project management and accounting parameters on the Revenue recognition tab.

When you enable this feature, Dynamics 365 Finance generates the revenue recognition only for each contract line that uses a fixed price billing method. You can manage all older projects or revenue recognition projects.

Fixed price revenue estimate project with a contract line

When you create a project contract line that has the following attributes in Dynamics 365 Project Operations on Dataverse, the system automatically creates a fixed price revenue estimate project. The information in the project is based on these attributes.

• A fixed price billing method
• An associated project
• At least one milestone that's defined on the Invoice schedule tab of the Project contract line page

When you activate Enable contract line-based revenue recognition with Project Operations for non-stocked/resource-based scenario, Dynamics 365 Finance generates a fixed-price revenue estimate project for each contract line that uses a fixed-price billing method and has a defined milestone.

For more information about project contract lines in Dataverse and how contract lines are linked with project tasks, see Project contract lines overview.

For more information about how to map projects and tasks to a project contract line, see Map projects and tasks to a project contract line.

Review project contracts for contract lines

To review the project contract lines or update additional details in Dynamics 365 Finance, follow these steps:

1. In the Dynamics 365 Finance environment, go to Project management and accounting > Projects > Project contracts.
2. On the Action Pane, select Show default accounting.
3. Select the contract line in the drop-down list to enter the default financial dimensions that are applicable to the contract line.
4. If the Straight line revenue recognition principal is applied on the revenue recognition project for the selected contract line, specify the start date and end date. The start date and end date are used to calculate the number of days that are required for the Straight line revenue recognition principal.

Review fixed price revenue estimate projects

To review fixed price revenue estimate projects, follow these steps:

1. In the Dynamics 365 Finance environment, go to Project management and accounting > Projects > Fixed price revenue estimate projects.

2. Select the revenue project that you want to view. Double-tap or double-click the Estimate project ID value to open the record and review the details of the project.

3. On the header, select the default project that's required to post the estimated revenue recognition amount. The system generates all the required financial postings for the project that's defined on the revenue recognition project header. Dynamics 365 Finance retrieves the financial dimensions from the project and uses them to record the financial transactions to revenue recognition.

4. On the header, select the cost template. This template is used to do the required calculations, such as completed percentage, completed contract, or straight line.

5. Select the Contract line tab. The Selected contract lines grid should contain one contract line. This line is the default contract line that the revenue recognition project is created for.

6. To change the association, select additional contract lines, and add them to the Selected contract lines grid. If you select multiple contract lines in this grid, the percentage completion and revenue estimates are calculated together for all selected contract lines.

   Note

   For the Straight line revenue recognition principal, each revenue recognition project can have only one contract line. Therefore, when you use the Straight line revenue recognition principal, you can't add multiple contract lines for a single revenue recognition project.

Set the Project cost, Revenue profile, Cost template, and Period code fields manually. If you don't set these fields manually, default values are entered during the first estimate calculation for the project by using the rules that are configured for project cost and revenue profiles.

Example scenario

Contoso Systems awards one contract to implement business applications for one of its customers. Per the agreement, the whole implementation is divided into the following phases:

1. License Fee – Fixed price. The Contoso Finance team decides to accrue the revenue based on the straight line method.
2. Analysis – Fixed price. The Contoso Finance team decides to accrue the revenue based on the completed contract method.
3. Implementation – Fixed price. The Contoso Finance team decides to accrue the revenue based on the completed percentage method.
4. Post go-live support – Fixed Price. The Contoso Finance team decides to accrue the revenue based on the straight line method.

In Project Operations on Dataverse, create a new project and a new project contract for the customer.

The following illustration shows the project that's created in Dataverse. Multiple tasks are associated with this project.

The following illustration shows the project contract that's created in Dataverse.

The following illustration shows the project contract lines that are created in Dataverse. Create four contract lines, one for each phase of the project. Each contract line uses the Fixed price billing method.

The following illustration shows the fixed price revenue estimate projects in Dynamics 365 Finance. For each project contract line that you create in Dataverse (as shown in the previous illustration), create one fixed price revenue estimate project in Dynamics 365 Finance.

The following illustration shows the Revenue projects page for the project's Implementation phase. On this page, set the Default project and Project cost and revenue profile fields. You need a default project to post the accrued revenue amounts that affect the project subledger. You need a project cost and revenue profile to identify the revenue recognition accounting rule that's applicable to the revenue project.

Recommended content

• Project contract lines overview – This article provides an overview of project contract lines.
• Map projects and tasks to a project contract line – This article provides an overview of mapping projects and tasks to a project contract line.
• Manage revenue estimates – This article provides an overview of managing and running the revenue recognition estimates.