You can use the cost-based POC method for:

• Sales orders
• Projects
• Internal orders with revenue, service orders with revenue, maintenance orders with revenue

With the cost-based POC method you can:

• Calculate revenue affecting net income on the basis of the actual costs. This enables you to report a profit before any revenue has actually been received.
• Determine the revenue in excess of billings
• Show unrealized profits

The POC method is often used in Britain and North America. Because German law does not allow unrealized profits to be reported, the POC method is used in Germany only for internal information purposes.

You have planned costs and revenues.

POC = C(a) / C(p)

C(PA) = POC * C(p) = C(a) / C(p) * C(p) = C(a)

R(PA) = POC * R(p) = C(a) / C(p) * R(p)

The costs affecting net income equal the actual cost. These costs can be allocated to CO-PA together with the revenue affecting net income.

If the actual revenue is greater than the revenue affecting net income, the system creates a revenue surplus. The revenue surplus is basically a reserve.

If the actual revenue is less than the revenue affecting net income, the system creates revenue in excess of billings.

The revenue in excess of billings and the revenue surplus can be transferred to FI and EC-PCA when you settle.

You have planned revenue of USD 200,000 and costs of USD 120,000 for a sales order.

In period 01 you have actual costs of USD 20,000 but no revenues. In results analysis, the system calculates the following data:

• Costs affecting net income in the amount of the actual costs of USD 20,000
• Revenue affecting net income of USD 33,333 using the formula: Revenue Affecting Net Income = Actual Costs / Planned Costs * Planned Revenue
• Revenue in excess of billings with the formula: Revenue in Excess of Billings = Revenue Affecting Net Income – Actual Revenue

You then settle the following:

• The revenue affecting net income to CO-PA together with the costs affecting net income
• The revenue in excess of billings to FI and EC-PCA

The following values are reported in CO-PA:

The income statement shows the following values:

Although no revenues have been received, profit has already been capitalized.

In period 02 the actual costs increase to USD 80,000. You deliver to your customer and send him a milestone invoice for USD 100,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:

• Revenue affecting net income of USD 133,333
• Costs affecting net income in the amount of the actual costs of USD 80,000
• Revenue in excess of billings of USD 33,333

You then settle the following:

• The change in the revenue affecting net income and in the costs affecting net income to CO-PA
• The change in the revenue in excess of billings to FI and EC-PCA

The following values are reported in CO-PA:

The income statement shows the following values:

Profit is capitalized in the revenue in excess of billings. This results in a profit of USD 53,000.

In period 03 the actual costs increase to USD 90,000. You deliver a second amount to your customer and send him a second milestone billing for USD 90,000. The total revenue is USD 190,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:

• Costs affecting net income in the amount of the actual costs of USD 90,000
• Revenue affecting net income of USD 150,000
• A revenue surplus of USD 40,000 because the actual revenue exceeds the revenue affecting net income The revenue in excess of billings is canceled.

You then settle the following:

• The change in the revenue affecting net income and in the costs affecting net income to CO-PA
• The revenue surplus and the cancellation of the revenue in excess of billings to FI and EC-PCA

The following values are reported in CO-PA:

The income statement shows the following values:

In period 04 the actual costs increase to USD 130,000. You deliver the remaining goods and send the customer the final invoice for USD 10,000. The total revenue is USD 200,000. The order is now fully delivered and fully invoiced.

In results analysis, the system calculates the following data:

• Costs affecting net income in the amount of the actual costs of USD 130,000
• Revenue affecting net income of USD 200,000 The revenue affecting net income is set equal to the actual revenue.

You then settle the following:

• The change in the revenue affecting net income and in the costs affecting net income to CO-PA
• The cancellation of the revenue surplus to FI and EC-PCA

The following values are reported in CO-PA:

The income statement shows the following values:

The order has a total profit of USD 70,000.