Cost recovery is the method of recouping expenses. It recognizes that not all revenue is collected immediately, or even within the same year, and it makes allowances for this in a business’s accounting system. Cost recovery methods are an important part of any company’s revenue recognition process. The principle of revenue recognition is one of the key processes in accrual accounting, which is a generally accepted way to record and report business income and expenditures.
It’s important to understand the implications of a cost recovery policy and how it affects your bottom line. In order to effectively manage costs and profitability, you should consider a number of factors, including your budget, your customer base, and your business’s ability to collect payments in full. A comprehensive cost recovery strategy will help you balance your finances, improve your bottom line, and increase revenue.
Managing Cost Recovery
Cost management is an ongoing process that should be reviewed at least once each year. This review should look at all aspects of your operation, from the amount of revenue received to the amount spent on each activity. It’s also important to consider how changes in external funding, new opportunities, or other factors might impact your overall operations.
For example, if you are relying on funding from a federal source, your agency may be required to follow specific guidelines regarding the percentage of expenses that can be recovered. It is best to work with your supervisor to create a comprehensive plan that will meet all of the requirements set forth by your organization’s leadership.
In addition, it’s important to think about how different events are treated when implementing a cost recovery strategy. For example, a department might choose to waive fees for events held by small, community groups. This helps to foster goodwill and shows that the city values all of its residents. However, these events aren’t usually covered by taxes, and therefore they shouldn’t be charged at a standard rate that would include the organization’s direct costs.
The Integrated CSU Administrative Manual’s (ICSUAM) section on Cost Allocation/Reimbursement should be consulted for more information on how to develop a comprehensive cost recovery policy. It’s also recommended that you work closely with your supervisor to make sure that all of the details are taken care of when it comes time for a review or invoicing.
Whenever possible, it’s a good idea to use the same process for internal cost recovery that is used for external cost recovery. This includes coding transactions with the appropriate auxiliary project codes to trigger invoicing at the end of the month. In this way, departments can avoid duplicate invoicing efforts and ensure that all cost recovery activities are processed using the same procedures. If you have questions about a particular transaction, contact your Accounts Receivable or Billing department. They can assist you in tracking down documentation that supports the expense. They can also assist you with completing a Journal Upload Entry Request (xls) to add cost recovery to a transaction in your accounting system.
