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Unbilled Revenue


One section of the accounting system procedures describes the policies and procedures relating to accounting for unbilled. Below is a sample of this section of the procedures from which you should tailor it to your situation.

Procedures Developed Using

  • Emerging Issues Task Force Issue No.00-21,Accounting for Revenue Arrangements with Multiple Deliverables
  • Accounting Research Bulletin (ARB) No. 43, Chapter 1a
  • Accounting Research Bulletin (ARB) No. 43, Chapter 11, “Government Contracts”
  • Accounting Research Bulletin 45, Long-Term Construction-Type Contracts
  • American Institute of Certified Public Accountants (AICPA) Statements of Position (SOP) No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts
  • AICPA Audit and Accounting Guide, Federal Government Contractors

Relevant sections of SOP 81-1:

  • .05 percentage-of-completion method is preferred when estimates of costs to complete can be reasonably made and are dependable
  • .13 contracts covered by this statement include contracts to design complex aerospace or electronic equipment to a buyer’s specification or provide related services
  • .15 fixed price and cost-plus priced contracts are covered by this statement
  • .17 the profit center (unit for accumulation of revenue and costs) is a single contract
  • .23 “use of the percentage-of-completion method depends on the ability to make reasonably dependable estimates”
  • .23 the percentage-of-completion method is preferable
  • .24 when a loss is anticipated recognition of the entire loss is to occur as soon as loss is evident
  • .26 “estimating procedures should provide reasonable assurance of a continuing ability to produce reasonably dependable estimates”
  • .48 efforts-expended method of measuring contract progress is measured by the ration of hours performed to date to estimated total completion hours
  • .55 estimated revenue is total amount expected to realize from the contract
  • .68 total estimated contract cost consist of cost incurred to date plus estimated cost to complete
  • .69 contract costs are charged to operations as related revenue is recognized
  • .71 “income is recognized over the term of the contract”
  • .72 all direct costs should be included in contract costs, indirect costs allocable to contracts should be included as contract costs, general, administrative and selling costs should be charged to expense and not to contract costs
  • .75d “start-up costs incurred in connection with existing contracts and in anticipation of future contracts should be charged to existing contracts”

Terminology used by other, similar companies:

  • EDS uses Unbilled Revenue
  • L-3 uses Unbilled Contract Receivables and Contracts in Process
  • BearingPoint uses Unbilled Revenue


We will use Unbilled Revenue rather than Work in Process (WIP)

To compute Unbilled Revenue for a project do the following each month:

  • Obtain the estimated number of hours to complete or estimated total number of hours to complete project (should be close to the same). If you get estimated number of hours to complete then add to total hours incurred to get total estimated completion hours.
  • Total the hours actually incurred during the month on the project to get current month hours spent.
  • Add current month hours spent to previous month’s year-to-date hours spent. This will give you the total hours incurred to date for the project.
  • Divide total hours incurred for the project (step 3) by total estimated completion hours (step 1). This is the computed percent complete.
  • Estimate percent complete separately from the computed percent complete.
  • Compare the two percent completes (steps 4 and 5). They should be close to the same. If not take the lower percent complete.
  • Multiply the percent complete from step 6 by the total projected budget value or phase value, whichever you are computing Unbilled Revenue for. This is the total earned to date.
  • Subtract from the total earned to date prior month’s billings and prior months earned but unbilled accruals. This result is the month’s earned but unbilled amount or Unbilled Revenue.
  • To double check the current months unbilled amount subtract the percent complete in step 6 from the percent in step 6 from last month. This is the additional percent complete earned in the current month. Multiply this percentage by the total projected budget. Result should equal the amount in step 8. They may be slightly different due to rounding.
  • Record as follows monthly Unbilled Revenue: Accrued revenue earned but unbilled (balance sheet) - debit Revenue Earned (Income Statement) – credit
  • When this project is billed the entry is: Accounts Receivable (balance sheet) – debit Accrued revenue earned but unbilled (balance sheet) - credit


  • At the end of March, 2006 it is estimated that the project will take 3050 hours to complete.
  • 453.5 hours were expended during March
  • Hours expended thru February were 1582.5. So total hours expended to date is 2036 hours.
  • Total hours incurred / Total estimated completion hours = 2036/3050 = 67%
  • Engineering estimates that we are 66% complete.
  • Engineering’s estimate is lower than computed so use 66%.
  • Total value for this phase is $400,000 times percent complete of 66% = $264,000.
  • Month’s earned but unbilled = $264,000 – $207,541 = $56,459.
  • Change in percent complete = 66% - 52% = 14%. $400,000 * 14% = $56,000. Difference of $459 is rounding.
  • Unbilled Revenue - $56,459 Revenue Earned (Income Statement) – $56,459
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