Defining contract parameters

After you set up your activity structure, you must define contract parameters for each contract activity within your structure. Contract parameters identify the method that will be used to recognize revenue, the level at which the revenue will be calculated, and many additional billing and revenue options. Use this procedure to define contract parameters.

Before you define contract parameters, define a contract type activity on Activity (AC10.1) and assign GL accounts on Account Assignment (AC07.1).

  1. Access Contract Parameters (BR10.1).
    Note: When you interface invoices to the Accounts Receivable application, the contract field will default in AR as User Field 1 for filtering.
  2. Specify a unique code and a description in the Contract fields, to identify the contract activity that you want to define the parameters.
  3. Associate the contract with an activity and identify other contract parameters on the Main tab. Use these guidelines to specify the field values:
    Note: When you interface invoices to the Accounts Receivable application, the contract field will default in AR as User Field 1 for filtering.
    Contract Activity

    Select the activity that you want to associate with the contract.

    Note: The activity that you select in this field must be defined as a contract-type activity and selected as billable on Activity (AC10.1).
    Contract Amount

    The amount displayed is the total contract amount defined on Contract Detail (BR10.2).

    Invoice Currency

    Select the currency code for billing contract amounts. This code will appear on the invoice. All amounts calculated on the billing and revenue transactions will be stored in this currency.

    Note: If the contract currency is different from your activity group base currency, then we recommend that you assign one of your activity group reporting currencies to match the contract currency. This lets you see all balance amounts in the contract currency.
    Exchange Rate

    Specify the exchange rate from the contract currency to the activity group base currency. This exchange rate is used when the Fixed Exchange field is set to Yes. It will exchange billable and revenue amounts to the contract currency if the transaction cost amounts are in a currency other than the contract or activity group base.

    If the Fixed Exchange field is set to No, then billable and revenue amounts are exchanged to contract currency using the exchange rate in effect on the transaction date. The default setting is 1.0000000.

    Note: This rate is used only if the contract currency is different from the activity group currency. This also is the starting exchange rate for the contract.
    Fixed Exchange

    Select Y (Yes) or N (No) to indicate whether the contract currency exchange rate is fixed or whether it fluctuates during the life of the contract.

    • If you select Y (Yes), then the current exchange rate assigned to the contract in the Exchange Rate field is always used. If you use a fixed exchange rate, then you will not have any gains or losses. The default setting is Yes.

    • If you select N (No), then the Currency Table assigned to the contract activities on Activity Group (AC00.1) is used and the rate fluctuates according to your currency exchange table.

    Revenue Method

    Select the method by which revenue associated with an activity is calculated:

    • P (Percent Complete): Recognizes revenue as services are performed based on the percentage of completion calculation.

    • A (Accrual): Recognizes revenue for billable costs as they occur, regardless of whether the costs are billed.

    • M (Milestone): Revenue is recognized during the life of an activity when a milestone (a significant point in the activity) is reached.

    • T (Cost Plus): Recognizes revenue on cost plus markup.

    • 9 (User-Defined): Recognizes revenue for billable costs based on a unique user-defined code.

      Note: If you select P (Percent Complete), then you must select a value in the Revenue Calculation field.
    Revenue Calculation

    Select how revenue is calculated for Percent Complete revenue recognition:

    • Method A — Percent Complete (A) calculated as total costs divided by the total budgeted amount. Use this method when you want the system to calculate percent complete for completed contract revenue recognition.

    • Method B — Gross Margin (B) calculated as gross profit divided by total contract. Use this method if you intend to follow the originator of expense.

      Note: If you use accrual, cost plus, or milestone, then leave this field blank.
    Calculation Level

    Select Posting/Segment (P), Contract/Non-Segment (C,) Posting/Acct Cat/Segment (1), or Contract/Acct Cat/Non-Segment (2) to indicate at what level revenue will be calculated.

    Ignore Rev Ceilings

    Select Yes (Y) or No (N) to indicate whether to ignore revenue ceilings when running Revenue Calculation (BR130) for the contract if you are using the Accrual or Cost Plus revenue method. If your revenue method is not Accrual or Cost Plus, then this field must be blank.

    If you select Yes, then the revenue will continue to be calculated even if revenue ceilings have been exceeded. This allows the revenue transactions being created to be tied back to the originating transactions.

    Budget Type

    Select Amount (A) or Unit (U) to indicate the budget type.

    Note: Budget values are used in Percent Complete revenue calculation.
    Account Category Group

    If you use percent complete calculation, then select the account category group with which you want to associate the contract. This is the default account category group.

    The account categories in the group are used to calculate the total cost-to-date and total budget amounts.

    Note: If you do not select an account category group, then the system uses all account categories assigned to the account category structure to determine percent complete. You can override the account category group in the percent complete calculation.
    Exclude Unpaid AP

    Select whether activity transactions associated with unpaid Accounts Payable invoices will be excluded from billing. To enable tracking of the payment status for these transactions, this field must be set to Yes at the time the invoice is released in Accounts Payable.

  4. Select the Customer tab and specify the customer information. Use these guidelines to specify the field values:
    Company

    Select the Accounts Receivable company that is associated with the contract activity.

    Customer

    Select the customer who is associated with the contract activity.

    Customer Invoice Option

    Select the invoice parameters which will be associated with this customer for this contract.

    Define invoice options on Customer (BR11.1). See Defining customer invoice options.

    Customer PO Number

    Specify a customer purchase order that is assigned to the contract. This number appears on the invoice for customer cross reference.

    Letter of Credit

    Specify the letter of credit number through which the contract is paid.

    Note: Letter of credit is allowed only if the invoice options assigned to the contract have the AR Interface Option field set to Summary.
    Document Number

    Specify the document number for the letter of credit. The document number is unique for different contracts.

  5. Select the GL Codes, Acct Categories tab and select account storage structures. Use these guidelines to specify the field values:
    Note: GL codes provide a shorthand way to identify General Ledger posting companies, accounting units, accounts and subaccounts. You can define a GL code on GL Code (AC04.1).
    Revenue

    If you want the revenue transaction to post to the company and accounting unit from the original transaction (revenue follows the originator of the expense), then select a General Ledger account/subaccount combination. Or, to always post the revenue transaction to a specific company and accounting unit, select a GL code that you want to post contract revenue to. After selecting an account/subaccount combination or a GL Code, select a revenue type account category for the transaction.

    Revenue Adjustments

    Select or specify the General Ledger account/subaccount and account category that you want to post revenue adjustments to. This must be a revenue type account category.

    Retainer

    If you want the retainer transaction to post to the company and accounting unit from the original transaction, then select a General Ledger account/subaccount combination. Or, to always post the retainer transaction to a specific company and accounting unit, select a GL code that you want to post the contract retainer to. After selecting an account/subaccount combination or a GL Code, select an accrual type account category for the transaction.

    Earned/Unbilled

    Select the GL code and account category where you want to store earned/unbilled amounts. This code is used for unbilled transactions. These entries are posted to the contract activity in the Billing and Revenue Management application. This must be an accrual type account category.

    Note: The unbilled GL code is used when revenue exceeds billing.
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    Billed/Unearned

    Select the GL code and account category where you want to store billed/unearned amounts. This code is used for billed transactions. These entries are posted to the contract activity in the Billing and Revenue Management application. This must be an accrual type account category.

    Note: The billed GL code is used when billing exceeds revenue.
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    Pass Thru

    Select the GL code and account category where you want to store pass thru amounts. These entries are posted to the contract activity in the Billing and Revenue Management application. This must be a pass thru type account category.

    Loss

    Select the GL code and account category to use for loss entries. This must be a cost type account category.

    Reserve for Loss

    Select the GL code to store reserve losses or loss transactions in.

  6. To post transactions to account parameters for specific account categories or to post revenue differently based on the cost, see the Billing and Revenue Management User Guide.
  7. Click Detail on Contract Parameters (BR10.1) to access Contract Detail (BR10.2). Use this form to define revenue for posting activities under your contract activity. Use these guidelines to specify the field values:
    Inc (Include) Activity

    Select Yes in this field to include the activity in revenue calculation. This field must be Yes in order to type a billing and revenue contract ceiling in the Contract Amount field.

    Contract Amount

    Specify the activity amount in the contract currency. The total amount entered for all contracts will determine the contract ceiling amount displayed on the Tolerance tab on Contract Parameters (BR10.1).

    Note: The base currency amount appears in the Base Amount field and is calculated using the exchange rate applied to the contract.
  8. To define a contract tolerance, select the Tolerance tab on Contract Parameters (BR10.1). Use these guidelines to specify the field values:
    Include for Billing

    Select Include (I) if you want to set tolerance amounts for billing. If you do not, then select Exclude (E).

    For billing, tolerances allow you to override a ceiling amount.

    For example, if the ceiling is set at $20,000 and the tolerance amount is $2,000, a ceiling amount of $22,000 is used.

    Include for Revenue

    Select Include (I) if you want to set tolerance amounts for revenue recognition. If you do not, then select Exclude (E).

    For revenue, regular revenue recognition stops at the original ceiling amount. Any amount that exceeds the ceiling but is within the tolerance amount that you specify is considered revenue-at-risk.

    Tolerance

    Specify an amount by which you will allow the contract to exceed the ceilings on the contract and billing records.

    Note: If you modify the tolerance at any point, then the ceiling plus new tolerance amount must still exceed the previously billed amount for the contract.
    Tolerance Code

    If you include a tolerance on the ceiling amount when Include for Revenue field is set to I, then you must select a journal code that will be used when the system automatically creates revenue-at-risk entries. You can define auto tolerance journal codes on Journal Codes (BR12.1).

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  9. Select the Adjustments tab and select contract defaults that will be displayed on the invoice. If you select defaults on the Adjustments tab, then you do not need to select these fields again if you choose to use the invoice edit feature. Field values selected on the Adjustments tab determine how Revenue Realization (BR131) will process revenue when billing amounts are written up or down. Use these guidelines to specify the field values:
    Invoice Edit Defaults
    Activity

    Select the default activity to use on invoice edit transactions. This value can be overridden on the invoice edit forms.

    Account Category

    Select the default account category to use on invoice edit transactions. This value can be overridden on the invoice edit forms.

    Company

    Select the default GL company to use on invoice edit transactions. This value can be overridden on the invoice edit forms.

    Accounting Unit

    Select the default accounting unit to use on invoice edit transactions. This value can be overridden on the invoice edit forms.

    Realization
    Method

    Select whether invoice adjustments should be pro-rated for billing and revenue:

    • 1 Prorate - the invoice adjustments will be prorated at a detail level for the contract for records that display on Invoice Edit Contract (BR20). If the contract is not set to Pro-Rate, then the adjustments would just roll up to the proper level in BR20 for viewing. Prorate for Revenue Realization is based on the Revenue Account Unit method selected. The default method is prorate.

      Note: Pro-rating will not be done against retainers, retention, fees, milestones, or ceiling overages. These are all types of records that do not display on lines in BR20.
    • 2 No Prorate use Defaults - creates one realization entry for each adjustment line created by the Invoice Edit Contract (BR20.1) program. The default settings used are the Company, Accounting Unit and Activity (defaults fields listed above in Invoice Edit Defaults) and Account, Sub-Account and Account Category from the GL Codes, Acct Cat tab on Contract Parameters (BR10.1).

    • 3 No Prorate Use Activity - creates one realization entry for each adjustment line created by the Invoice Edit Contract (BR20.1) program. The default Activity used is the one that is on the original detail line on Invoice Edit Activity (BR20.3) or Invoice Edit Activity and Account Category (BR20.4).

    Note: If you select prorate, then you must select an option for the Revenue Account Unit field.
    Revenue Account Unit

    Select Activity Company Account Unit (A) or Trans Company Account Unit (T). The default is Trans Company Account Unit (T).

    Revenue Transaction Detail

    Select whether individual transactions can be summarized along with other like transactions. The default setting is No.

  10. Select the Amounts tab to view contract and fee amounts for a contract. Select the contract for which you want to view amounts in the Contract field.