RCGI-Costpoint Managing Your Unbilled Receivables

If your unbilled receivables account has you searching for a solution as simple as waving a Harry Potter wand and reciting “Evanesco!” you are not alone. The everyday life of an accountant is chock-full of number-crunching, and then you suddenly realize the “deathly hollows” of year-end is quickly approaching. Whether you are new to the tracking of unbilled receivables or the account has been covered in cobwebs, understanding the creation process to this “chamber of secrets” is where your journey out of the “dark forest” can begin.

Wizarding Note: 

Evanesco (Vanishing Spell). Type: Transfiguration, Pronunciation: ev-an-ES-koh, Description: Vanishes the target; the best description of what happens to it is that it goes "into non-being, which is to say, everything."





Unbilled Receivables

What exactly are unbilled receivables? Simply put, the term is defined as the difference between recognized revenue and billing. Theoretically, if everything that could be billed was billed, no unbilled receivable balance would exist. However, as we start to dig a little deeper into the logistics of contract billing, we find the process is often not so cut and dried.

Recording Receivables

For some accounting software, the recording of a billing invoice debits billed receivables and credits revenue with no recording of unbilled receivables. The recognized revenue is dependent upon the billed amount. However, with Deltek Costpoint, the revenue and billing calculations are independent of one another. Each are set up with their own calculation formula and ceilings. The offsetting account for each calculation is the unbilled receivables account. Hence, the recording of a billing invoice is a debit to billed receivables and a credit to unbilled receivables. When recording revenue, the debit is recorded to unbilled receivables and the offsetting credit is to the revenue account.

Unbilled Costs

Since Costpoint has a couple of revenue formulas that allow revenue to equal billing before or after retainage, you may ask, why not just use one of those formulas so no unbilled balance is created? The problem with taking that approach is true unbilled costs may exist; it is just more difficult to know when that is the case. Setting up the Costpoint revenue and billing formulas so they compute independently of each other permits the system an account bucket for the unbilled costs to be collected and tracked to resolution, thereby removing the unbilled “cloak of invisibility”.

Legitimate Unbilled Costs

While the ultimate goal is for the contract unbilled receivable balance to be zero, there are various reasons why unbilled costs may legitimately exist. For example, the contract may not permit invoicing to exceed contract funding. Therefore, the amount in excess of the contract funding value is true unbilled costs that would be captured by allowing revenue recognition up to the value of the contract. Other reasons for unbilled values can include hours or cost with a billing hold status, unbilled revenue adjustments, accruals or year-end revenue recognition based on actual indirect rates prior to a true-up billing from target to actual rates. Also, there could be timing differences where additional costs or timesheet corrections were recorded in the accounting period after the invoice was produced. Performing a monthly reconciliation of unbilled costs is vital to turning unbilled costs into billed costs which results in better cash flow, audit preparedness and quicker contract close-out.

Redstone’s Wizards

There is no need to madly search for Platform 9 ¾ or to feel like a “Prisoner of Azkaban.” One of Redstone Government Consulting’s accounting wizards can help open the door to reveal the hidden secrets. Alohomora! Specialis Revelio! Let us wave our magic wands, guiding you through unbilled receivable concerns.

Wizarding Note: 

Alohomora
(Unlocking Charm). Type: Charm, Pronunciation: al-LOH-ha-MOHR-ah, Description: Used to open and unlock doors; it can unseal doors upon which the Locking Spell has been cast, although it is possible to bewitch doors to resist the spell.

Specialis Revelio (Scarpin's Revelaspell). Type: Charm, Pronunciation: speh-see-AH-LIS reh-VEL-ee-oh, Description: Apparently causes an object to show its hidden secrets or magical properties.

Possible References: a Quidditch match and ending the game by catching the Golden Snitch before the bluggens get you…

 

Blog author note: This blog was inspired in part by my granddaughter who loves the Harry Potter novels written by J.K. Rowling and in celebration of the 20th anniversary release of the first U.S. book, Harry Potter and The Sorcerer’s Stone, released on Sept. 1, 1998. I hope you enjoyed the references.

 

Written by Redstone Team

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Compliant Accounting Infrastructure, Proposal Cost Volume Development & Pricing, Deltek Costpoint