Accounting issue when billing happens on Transaction Currency.

Question

Hi everyone,
Need your suggestion on the issue i am facing with respect to accounting in projects.
My client does funding, revenue budgets on the project functional currency say its USD. But bill on a different currency say its EUR. When they have a contract for 1000 EUR with customer, they go and enter the funding , revenue budget in USD converted on that day say at 1.5 to 1500 USD
So i have 1500 USD entered as approved revenue budget and there is also a revenue hard limit set, but no invoice hard limit set.
When revenue is recognized then following happens
Dr WIP - Unbilled Receivable 1500 USD
Cr PA Net Sales Revenue 1500 USD
When at the end of project invoice is raised. we create a event for 1000 EUR and run invoice generation process..
an invoice of 1000 EUR is created in AR. But at that time assume the rate is 1.4 so the following accounting happens
Dr Receivable Account 1400 USD
Cr WIP - Unbilled Receivable 1400 USD
So there the balance WIP - Unbilled receivable account is not zero. How you suggest to handle such scenarios..
since the revenue figure is decided with the particular user rate at the start of the project, do we apply user rate on the AR invoice generated and force the user to change the rate after invoice is created in AR ?
If so what is the setup to make sure the invoice created in AR has the rate type as User.
Also what the best way for such scenarios ?
Regards
Rajesh

Answer 1

Hi
You might force the exchange rate for each invoice, when you release the draft invoice in Projects, before interfacing it to AR.
There will be a variance also when you apply customer payment to the project invoice. On the cash application date the rate might have another value as well. The system will create realized exchange rate gain or loss, that you might want to consider as project revenue or as finance income or expenses.
Oracle design offer another solution. You will enter funding in EUR (the customer currency) and before generating revenue you should run the process - PRC: Revaluate Project Funding. The process will enter a funding line of class - Relvaluation, which might be positive or negative amount in USD (functional currency).
The revaluation process includes exchange rate variances so the total funding in USD at the end of the project, will be equal total amount received from customer.
Taking this method, the revenue amount will equal, at the project completion, to the total funding, the total cash received.
System is generating revenue FX events for the value of the realized exchange rate gains and losses. Those events credit revenue but debit special accounts - FX gains and FX loss accounts. Those FX events when included in GDR do not debit the UBR & UER balance. By project end the UBR & UER balance in USD will be zero.
Dina