Revenue Recognition methods in Keka PSA

Overview

In this guide, you will learn:

• What revenue recognition means and why it matters
• The four revenue recognition methods available in Keka PSA
• How each method works with real-world examples
  

Who can do this?

• Finance Admins
• PSA Admins
• Users with access to Project Financials

Pre-requisites

1. A billing-enabled project set up in Keka PSA
2. Revenue recognition method configured for the project

Introduction

Revenue recognition is an accounting principle that helps businesses track income based on when it is earned—not when payment is received. In long-term or multi-phase projects, recognizing revenue progressively helps businesses match their earnings with the costs incurred during the same period. This ensures more accurate profit measurement and financial reporting.

Keka PSA offers four flexible revenue recognition methods that allow businesses to measure project revenue according to their specific operational model.

Revenue Recognition Methods

1. Income to date

This method calculates recognized revenue based on actual work delivered, multiplied by its respective selling price. It is particularly useful when you want to track earnings tied directly to billable activities—such as hours logged or units delivered—regardless of the overall project estimate.

Example: A client has been quoted for:

• 120 hours of service at ₹2,000/hour

• 15 devices at ₹5,000 each

By the current date, the project has:

• Completed 60 hours of work

• Delivered and invoiced 10 devices

Recognized revenue =
(60 × ₹2,000) + (10 × ₹5,000) = ₹1,20,000 + ₹50,000 = ₹1,70,000

This method does not depend on total project duration or cost estimates. It purely reflects revenue earned from work already delivered.

2. Invoiced amount

In this method, revenue is recognized based on the total value of invoices generated for the project. It is commonly used in milestone billing or installment-based payment models.

Example: If you have a project worth ₹10,00,000 and you’ve already invoiced the client for ₹4,00,000, the recognized revenue will be:

₹4,00,000

This method is straightforward and links directly to financial transactions. It’s ideal for businesses that prefer to align revenue with actual billing, rather than project progress.

3. Revenue based on cost (cost-to-cost method)

This method evaluates revenue based on the ratio of actual cost incurred to the total estimated project cost. It is well-suited for projects where expenses form a major part of delivery.

Example: A project has -

• Total estimated cost: ₹6,00,000

• Budgeted revenue: ₹8,00,000

• Incurred costs so far: ₹3,00,000

Project progress = ₹3,00,000 / ₹6,00,000 = 50%
Recognized revenue = 50% × ₹8,00,000 = ₹4,00,000

This method helps you measure revenue in proportion to how much has already been spent to deliver the project.

4. Revenue based on time (time-expended method)

In this approach, progress is measured using the time already invested in the project, compared to the estimated total time required. Revenue is then recognized in proportion to that progress.

Example: 
Estimated effort: 200 hours
Time spent so far: 80 hours
Budgeted income: ₹5,00,000

Project progress = 80 / 200 = 40%
Recognized revenue = 40% × ₹5,00,000 = ₹2,00,000

This method is beneficial when your projects are primarily driven by hours logged rather than external costs or milestones.