
It's recommended that you create three accounts to record your over/underbillings:
Underbillings (Asset/Balance Sheet)- Current Asset
Overbillings (Liability/Balance Sheet)- Current Liability
Revenue: Over/Under (Revenue/Income Statement)- Separate revenue account recommended, not required. I personally think it's easier to reconcile contract activity when you have over/underbillings separate from your construction revenues account.
Remember that the revenue: over/under account is where the difference between under and overbillings goes to balance the journal entry. So if you have to debit underbillings by $10,000 and credit overbillings by $3,000, you would also credit the revenue: over/underbillings by $7,000 so your entry balances ($10,000 in debits and $10,000 in credits).
Different scenarios for illustration:
Increasing Underbillings:
When you increase underbillings, you're increasing revenues
Debit: Underbillings
Credit: Revenue
Decreasing Underbillings:
When you decrease underbillings, you're decreasing revenues
Debit: Revenue
Credit: Underbillings
Increasing Overbillings:
When you increase overbillings, you're decreasing revenues
Debit: Revenue
Credit: Overbillings
Decreasing Overbillings:
When you decrease overbillings, you're increasing revenues
Debit: Overbillings
Credit: Revenue
Hope that helped! Thanks!
Ara
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