The Contract Completion Process is a reconciliation between the invoiced value associated to a Contract and the recognized revenue associated to the Contract, which then passes an adjustment to balance the two values. 

Recall how the Contract process allows the separation between the A/R invoice process and the revenue recognition process. The invoice process is based on milestones or contract billing phases and results in a credit being processed to the contract control or deferred income account and no revenue being posted to the income statement. The recognition of revenue is based on the work done on the Job and will result in a debit being processed to the contract control or deferred income account.

These two processes work completely independently of each other and can be processed in any order and at any stage depending on the agreed nature and terms of the Contract.

At the end of the Contract, a reconciliation needs to be carried out that compares the value that has been accrued via revenue recognition. This is where the Contract Completion Process is used.

Contract Completion Process

The Contract Completion Process compares the invoiced values to the accrued values and then processes an adjusting journal entry that will clear the Contract control or deferred income account and leave the balance zero for that Contract. 

As the name implies, the Contract Completion Process must be run at the end of the Contract. All the necessary invoicing must have been completed, which includes the invoicing of any retentions, and all necessary revenue recognition processing should be completed. 

After the Contract Completion Process has been run, the Contract will be set to a Closed status. The Job itself is not closed and further processing can be done on the Job, but no further Contract related processing can be done.

 If the need arises to make changes to a Contract, the only way the Contract can be re-opened is by reversing a Contract related transaction. 

For example, when a Contract invoice is copied through to a credit note, a check is carried out to see if the Contract is closed. If the Contract is closed, then the Contract Status will be altered to re-open it, and at the same time, the Contract Completion Journal that would have been processed is reversed. This allows the company to re-process the transaction in the correct manner and then carry out the Contract Completion Process again based on the altered processing. 

When the Contract Completion Process is run, the system calculates the total credit value that has been processed through the Contract Control account for the Project Code assigned to the Master Job and compares it to the total debit value that has been processed through the account. The difference between the two values constitutes the adjustment that needs to be processed.

The actual journal entry that is processed varies depending on the processing that has been done on the Job. Two accounts will be affected by the journal entry: 

1. The Contract Control account defined in the Eralis Job System Initialization
2. The Over/Under Recovery account defined on the header of the Master Job

If the value of the invoices exceeds the value that has been accrued as revenue, the system will do a debit to the Contract Control account and a credit to the Over/Under Recovery account. Where the situation is reversed, and the recognized value exceeds the invoiced value, the journal will be the opposite with the debit being processed to the Under/Over Recovery account and the credit being processed to the Contract Control account.