Why projects settle, assets under construction, settlement profiles and rules, results analysis, and the period-end sequence.
Contents
Settlement moves cost collected on a project to where it finally belongs. A project is a temporary container, not a resting place.
Where cost settles to
Receiver
When
Accounting treatment
Fixed asset via AuC
Capital investment projects
Capitalised
Cost centre
Internal projects
Departmental expense
G/L account
A specific expense
Expensed
Profitability segment
Customer contracts
Reflected in product and customer margin
Sales document
Make to order
Cost of sales
Another WBS element
Aggregation within the structure
Internal transfer
Assets under construction
Two-stage settlement
Stage
Receiver
When
First
Assets under construction
Each period end while building
Second
The completed asset
On completion
Cost on equipment still being built cannot be depreciated but is not an expense either, so it sits in assets under construction until completion, when it transfers to the real asset account and depreciation begins.
Profiles and rules
Element
Where
Content
Settlement profile
Via the project profile
Which receivers are permitted
Settlement rule
On each WBS element or network
The actual receiver and the split
Results analysis
On long contracts, revenue and cost fall in different periods. Results analysis computes the work in process, deferred revenue and provisions that align them.
What it calculates
Item
Meaning
Work in process
Cost incurred but not yet billed; an asset
Deferred revenue
Billed but not yet earned; a liability
Provisions
For anticipated losses
Recognised revenue
Revenue recognised according to progress
Period-end sequence
Step
Activity
Code
1
Overhead application
CJ44 / CJ45
2
Interest calculation, where used
CJZ2
3
Results analysis
KKA2 / KKAJ
4
Settlement
CJ88 / CJ8G
5
TECO completed projects
CJ20N
Order matters: applying overhead after results analysis would understate work in process, and settlement has to reflect what results analysis produced.
Check your understanding
Test what you just read.
Quiz 1
What is the transaction code for project settlement?
Quiz 2
What is the typical settlement receiver for investment projects?
Quiz 3
Settlement Rules specify receivers and distribution percentages per WBS element.
Quiz 4
What is the difference between periodic and final settlement?
Quiz 5
Project settlement can be executed without setting up settlement rules.
Quiz 6
Arrange the investment project settlement process flow in order.
Click items in the correct order
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