This article explains how our Oil & Gas accounting software follows industry-standard accounting practices when handling production revenue and owner distributions.
This approach ensures fiduciary responsibility, audit readiness, and clean financial reporting for operators and owners alike.
Our Oil & Gas accounting software follows industry best practices and standard accounting principles for handling production revenue, joint interest distributions, and operator allocations.
Key principle: revenue received from a first purchaser is not immediately the operator’s income. It is held until ownership allocations are calculated and distributions are processed.
When oil or gas is sold, the first purchaser remits payment to the operator. Upon receipt, the deposit is recorded as:
At the time of deposit, the operator does not yet know final ownership allocation. The funds must be processed and distributed according to ownership interests. For that reason, the Revenue Clearing Account functions as a liability reflecting funds held for distribution — not earned operator income.
In our experience, CPAs and audits strongly prefer production revenue deposits to be placed into a separate bank account rather than commingled with general operating funds. This functions like a sweep/clearing account and strengthens internal controls.
Benefits include:
Revenue becomes properly allocated when a Run is closed. During Run Close, the system:
At that point, the Revenue Clearing liability is relieved and income/payables are properly recognized.
Operators sometimes assume “the money is mine when it hits the bank.” In reality, the operator only earns their portion after the Run is processed because only then do we know who owns what share of the funds.
Some operators request backdating the processing to match the deposit date. Our software can support this through advanced posting options, but only at closing and it is not recommended as a standard practice.
Backdating increases audit complexity and can create situations where income appears recognized before the deposit is made. This does not align with standard accounting best practices and can raise concerns during a review or audit.
Our system separates Production Date reporting from Accounting Date posting. Operators can run production reports by production month independent of the accounting dates used for financial posting. This provides operational accuracy without compromising accounting controls and audit traceability.
Result: a clean, audit-ready workflow that reflects the operator’s fiduciary role and ensures owners receive the correct funds once allocations are known.