Work done but not yet invoiced at month end
How a consultancy shows work done but not yet invoiced when it closes a month, with an accrued income journal that is reversed when the invoice goes out.
By Achekam · · 4 min read · For Consulting businesses in South Africa, Nigeria, Kenya
A consultancy's team spends most of September on a large review for a client. The contract says the fee is invoiced when the report is delivered, which happens in October. September's management accounts show salaries, travel and research costs for the project and no income at all. October shows the whole fee. One month looks like a disaster, the next like a triumph, and neither tells the partners how the firm is actually doing.
The fix is an accrual: recognise in each month the work done in that month, whether or not it has been invoiced. This article shows how to estimate unbilled work, post it in Achekam, and reverse it cleanly when the invoice goes out.
Why monthly profit swings with invoicing dates
In Achekam, issuing a customer invoice takes the next number in your sequence and posts it to the ledger as debtors, sales and output VAT. Income appears in the month the invoice is issued. Management accounts show an income statement for a chosen period, beside the period before, added up from those journals.
So if invoicing is lumpy, profit is lumpy. Milestone billing, fees on delivery, retainers billed quarterly and expenses recharged later all push income away from the month the work was done. Costs, meanwhile, arrive every month.
The accounting principle at stake is the accruals concept. AccountingTools explains the accruals concept: recording revenue and expenses in the period they are earned or incurred, including accrued revenue, accrued expenses and reversing entries.
Estimating work done but not invoiced
Before posting anything, you need a defensible estimate. Common methods for a consultancy:
- Time-based: hours recorded on the engagement in the month, at the rates the client will be charged, less any time you already expect to write off.
- Stage-based: for a fixed fee, the share of the fee matching the work completed, judged against the engagement plan.
- Retainer-based: the part of a quarterly or annual retainer that relates to this month.
Whatever the method, apply two limits. Never accrue more than the client can be billed under the contract. And never accrue work you doubt the client will accept, such as rework or scope the client has not agreed.
A worked example in words: a fixed-fee review is invoiced on delivery. At the end of September, the engagement partner judges that the fieldwork, roughly two-thirds of the work, is complete. The accrual for September is two-thirds of the fee, less nothing for write-offs because the work is on track.
An accrued income journal
Add an account to hold the estimate. Each business has its own double-entry ledger with a standard chart of accounts, and accounts can be added, renamed or switched off. Create an asset account called something like Accrued income, or Unbilled work.
Then post a manual journal dated the last day of the month:
- Debit Accrued income, with the estimate;
- Credit the revenue account where the fee will eventually land, so the income sits in the right month.
Achekam refuses a journal that does not balance. Write the engagement, the method and the person who made the estimate in the journal's description, so the reviewer can see where the figure came from.
Reversing it when the invoice is issued
Next month, when the invoice goes out, it posts the full fee to income. If the accrual were left in place, the same work would be counted twice. So on the first day of the following month, post the reversal: credit Accrued income and debit revenue with the same amount.
In Achekam a posted journal is corrected only by a reversal, so the reversal is an ordinary part of the trail, not an admission of a mistake. The result in October is the fee from the invoice less September's accrual, which leaves October with only October's share of the work.
Some firms prefer to reverse only when the invoice is actually issued. Either works, as long as the rule is the same every month.
Closed months refuse postings
Months in Achekam can be soft-closed, hard-closed and locked. A closed month refuses postings from every source, and reopening a hard close needs a second approver. Before closing, the screen checks the ledger balances and that no posting suggestions, unposted bills or unmatched bank lines are waiting.
So the accrual for September must be posted before September is closed. Build it into the month-end checklist, with a named person and a date, or it will be the first thing forgotten in a busy month.
Keeping the estimate honest
Accruals are estimates, and estimates drift towards optimism. A few rules keep them straight:
- The engagement partner proposes the figure; someone else reviews it before it is posted.
- Every accrual has a reason and a method in its description.
- Each month, compare last month's accruals with what was actually invoiced, and note the difference.
- Accruals that sit for months without an invoice are reviewed and, if necessary, written back.
Next month end
Pick the two or three engagements that cause the biggest monthly swings and accrue for them first. Once the habit is in place, extend it to the rest. The partners' pack, described in a monthly management pack for partners, will read far more evenly. Accrued costs work the same way in reverse, as month-end accruals in logistics shows, and remember that an accrual is profit, not cash; profitable on paper but short of cash explains the difference.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
