🧠 Purpose
If you are thinking about switching from Invoiced Revenue (recognizing revenue when you invoice your customers) to Earned Revenue (recognizing revenue when costs are incurred), but you are not sure where to start, this document will help you to prepare for that switch!
We recommended that you follow the following steps prior to switching:
Set a date for the switch. Some clients make the switch at the end of the year when most of their Maintenance Contracts (Fixed Payment Contracts) come up for renewal. You can make the switch whenever you feel your company is best prepared and ready for the change, but we recommend you do it at the end of the year.
Register and attend the over/under Training. Click here to review the Aspire Live Training Sessions. The over/under class is held once a month.
This class will teach what you need to know to clean up your over/under.
How to review your over/under monthly.
How to analyze over/under for ‘All’ time on Aspire.
And help to ensure that your over/under is accurate when the switch is made.
If you were not ‘Earned Revenue’ and did not maintain a ‘WIP’ (Work in Progress Report), you did not record an over/under number to your balance sheet.
In Aspire the term ‘over/under’ is the difference between what you invoiced for a period and the revenue you earned for the same period. In the Construction Industry these would be considered “Billings in excess of Costs” (over billed) or “Costs in excess of Billings” (under billed) aka in Aspire's world over/under.
🧠 Example: You invoiced your clients $100,000.00 for the period, but you earned $150,000.00 for that same period, you would be ‘under” billed for the period and record an over/under entry to debit the over/under Account for the $50,000 difference. This would be considered an asset on your Balance Sheet; in other words, you have unbilled revenue.
Your Journal Entry may look like this:
| Debit | Credit |
Accounts Receivable / Earned Revenue | $100,000.00 |
|
Percent Complete / Earned Revenue |
| $150,000.00 |
The difference between what was invoiced and what was earned or Over/Under - Costs in Excess of Billings | $50,000 |
|
You invoiced your clients $150,000.00 for the period, but only earned $100,000, you would be considered ‘over’ billed for the period and would record an entry to credit the over/under for the $50,000.00 difference. This would be considered a liability on your balance sheet because you have invoiced for more than you have earned in that period.
| Debit | Credit |
Accounts Receivable / Invoiced Amount | $150,000.00 |
|
Percent Complete / Earned Revenue |
| $100,000.00 |
The difference between what was invoiced and what was earned or Over/Under - Billings in Excess of Costs |
| $50,000 |
5. How does Aspire determine what revenue was ‘earned’? The calculation to determine what is earned is Actual Cost divided by Estimated Cost = Percent Complete, Percent Complete multiplied by the Estimated = Earned Revenue.
|
|
Estimated Revenue: |
$100,000.00
|
Estimated Cost to Complete:
|
$50,000.00
|
Actual Cost to Date:
|
$25,000.00
|
Formula: $25,000.00 divided by $50,000.00 = 50% complete
50% complete multiplied by $100,000.00 = $50,000.00 Earned Revenue
6. Be sure to submit a ticket to AspireCare to convert your system from Invoiced to Earned Revenue. This is a process handled on the back end of Aspire! Click here for more information on submitting a ticket to AspireCare.
📌Note: If you are currently SAS (Simplified Aspire System) and want to make the switch to Earned Revenue, you will need to switch to SAAS (Standard Aspire Accounting System). This swap will ensure the accuracy of your financial statements in your accounting system. By switching from SAS to SAAS, you will now record inventory on your balance sheet and need an initial inventory balance established.
Please visit the Aspire Knowledge Base and review the following documents for additional information: