Cross-Charging

Cross-charging between divisions (organizations) is a common practice. However, you need to determine which division(s) collects the revenue before making your posting method selections. The advantages and disadvantages of these selections follow:

• Owning Organization Revenue, Owning Organization Costs: If you enter and post labor and non-labor costs using the project’s Owning Organization, you lose visibility of who actually charged the project.  For instance, suppose an administrator changes John Turney’s home organization number, 1.2.555, to the project’s Owning Organization number, which is 1.2.200, during timesheet entry. In such a case, the divisional costs cannot be accumulated and revenue cannot be broken down by the organization that performed the work. This is the most restrictive and least used form of charging and revenue recognition, and is typically unapproved for government contractors.
• Owning Organization Revenue, Performing Organization Costs: This combination allows you to record costs via the Performing Organization but to recognize revenue by the Owning Organization. It allows the "owner" of the project to recognize the revenue, because the division which attained the contract work is the most crucial factor in determining revenue allocation. Since the Performing Organizations gather costs and are used to set up pools, this combination ensures correct indirect cost allocations. 
• Performing Organization Revenue, Performing Organization Costs: This combination places emphasis on the "performers" of the contract work because the individual divisions should share in the revenue and profit of the work. This method also allows for correct indirect cost allocations, revenue and fee computations. 

Impacts of Posting Methods

Choosing either posting method has no affect on project reporting. You can print the PSR, Revenue Summary, and Revenue Worksheet using the Owning or Performing Organizations.  However, your method choice affects the General Ledger. When you post revenue using the Owning Organization method, the Income Statement for each division may not tie to the Owning Organization PSR, and therefore, may not be useful to management. For example, assume the following setup:

Revenue is setup at level 1, "SB99," with an owning org of 1.3. The program computes costs and revenue at the task level as follows:

During the Sales Journal Posting, the following entry was made:

Unbilled A/R (1.3):  525.00

Revenue (1.3):  525.00

If you print an Income Statement for each organization, the following information appears:

Additional Processes

If you post revenue by Owning Organization, you may want to see the revenue and costs associated with the work “owner,” but might also want to preserve the Performing Organization transaction history in the General Ledger. To accomplish this, you can execute the Create Cost Transfer Journal Entry screen to reclass the Performing Organization costs to the Owning Organization for Financial Statement presentation. Implementing this application does not affect the PSR, Revenue Summary, and Revenue Worksheet reports because the process uses non-project required accounts to make the entries to reclass the costs and burdens. You can find the accounts used to move direct costs on the Manage Financial Statements screen, and the indirect cost reclass accounts in the in the FS Reclass fields on the Manage Cost Pools screen.

The Performing Organization posting method may also require an additional process to correctly state the divisional Income Statements, because although you may post revenue using the Performing Organization, it may not post revenue as expected. This is because some projects with fixed amount revenue formulas, such as Equal to Billings, Fixed Amount Month to Date, Fixed Amount Contract to Date have revenue “plug” amounts entered to the Revenue Project/Account/Owning Organization combination, during the revenue computation. For example, based on the previous data:

Assume the revenue formula is Fixed Amount Month to Date and the Fixed Amount value is 750.00. During the Compute Revenue process, costs are considered allowable at the transaction project level and the revenue “plug” is entered at the revenue level of the project to derive the revenue. Based on the setup of this project, the revenue is computed as follows:

* Fixed Amount Month to Date Revenue — Transaction Level Costs

(750.00- 150.00 — 300.00)

The divisional Income Statements, after posting revenue, are as follows:

Again, you can see where these Income Statements may not be useful to management since the Owning Organization is actually receiving the profit even though they performed no work on the project. In order to resolve this issue, execute the Redistribute Revenue process. This application moves revenue “plug” amounts from the Owning Organization of the project to the Performing Organization based on the ratio of the Performing Organization revenue to the total revenue. In the example, the $300.00 in the previous table is allocated as follows:

* (Original Revenue Amt/Total Transactional Revenue Amt) * Total Revenue Amt  (150.00 / 450.00) * 750.00

**  (Original Revenue Amt/Total Transactional Revenue Amt) * Total Revenue Amt  (300.00 / 450.00) * 750.00

This allows the revenue plug to be posted proportionately to the performing organizations of the project.