Switching from Invoiced to Earned Revenue

Overview

Invoiced Revenue recognizes revenue when you invoice your customers. Earned Revenue recognizes revenue as costs are incurred on the work. If you're planning to switch your Aspire account from Invoiced Revenue to Earned Revenue, use this article to prepare. It covers what to set up before your switch date and how Aspire calculates the over/under and earned revenue you'll track afterward.

Things to know

You can switch at any time, but we recommend the end of the year. Many companies switch then because most of their maintenance contracts (Fixed Payment Contracts) come up for renewal.
If you haven't used Earned Revenue or kept a Work in Progress (WIP) report, you haven't recorded an over/under amount on your balance sheet.
The Over/Under Adjustment feature isn't turned on automatically. AspireCare turns it on for you after you attend the Over/Under training.

Requirements

Your Aspire account must use Standard Aspire Accounting Solution (SAAS).
Only Power Users can submit cases to AspireCare.
To create over/under adjustments after you switch, your user role needs the Create Over Under Adjustment Records permission.

Note: If your Aspire account uses Simplified Accounting Solution (SAS), you need to switch to Standard Aspire Accounting Solution (SAAS) before you switch to Earned Revenue. With SAAS, you record inventory on your balance sheet, so you'll need to establish an initial inventory balance. This keeps the financial statements in your accounting system accurate. To learn more, see Switching from Simplified (SAS) to Standard (SAAS).

Prepare to switch to Earned Revenue

Choose a date for the switch.
Register for and attend the Over/Under training. To find an upcoming session, go to Live Training Calendars and Recordings. The class shows you how to clean up your over/under, review it monthly, and analyze it with a date range of All Time. This helps make sure your over/under is accurate when you switch.
Submit a case to AspireCare to turn on the Over/Under Adjustment feature. This feature supports your transition from Invoiced Revenue to Earned Revenue. To learn more about the feature, see Completing Over/Under Adjustments in Aspire.

How over/under works

In Aspire, 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 amounts are called Billings in Excess of Costs (over billed) and Costs in Excess of Billings (under billed).

When you're under billed

If you invoiced your customers $100,000.00 for the period but earned $150,000.00, you're under billed. You record an over/under entry that debits the over/under account for the $50,000.00 difference. This amount is an asset on your balance sheet because it's unbilled revenue.

Your journal entry might look like this:

Account	Debit	Credit
Accounts Receivable / Invoiced Amount	$100,000.00
Percent Complete / Earned Revenue		$150,000.00
Over/Under – Costs in Excess of Billings	$50,000.00

When you're over billed

If you invoiced your customers $150,000.00 for the period but earned $100,000.00, you're over billed. You record an entry that credits the over/under account for the $50,000.00 difference. This amount is a liability on your balance sheet because you invoiced more than you earned for the period.

Your journal entry might look like this:

Account	Debit	Credit
Accounts Receivable / Invoiced Amount	$150,000.00
Percent Complete / Earned Revenue		$100,000.00
Over/Under – Billings in Excess of Costs		$50,000.00

How Aspire calculates earned revenue

Aspire calculates earned revenue in two steps:

Actual cost divided by estimated cost equals percent complete.
Percent complete multiplied by estimated revenue equals earned revenue.

Example

Value	Amount
Estimated Revenue	$100,000.00
Estimated Cost to Complete	$50,000.00
Actual Cost to Date	$25,000.00

Using these values:

$25,000.00 divided by $50,000.00 equals 50% complete.
50% multiplied by $100,000.00 equals $50,000.00 in earned revenue.