How To Create A Revenue Recognition Contract

To create a new Revenue Recognition (RevRec) contract, navigate to Accounting > Manage Revenue Recognition > Revenue Recognition Contracts and click the "New" button in the detail section. This will bring up the new contract wizard where you can enter the information.

Create A New Revenue Recognition Contract

The image below depicts the first step in creating a new RevRec contract. Here you define the contract's name and recognition behavior. Table 1 below the example describes each field on the screen depicted below. Fill out the information and click Save to submit the new RevRec contract.

New_RevRec_Contract.png

Terms Defined

Table 1
Field Name Description
Contract Name A unique name for RevRec contract. It will help to be descriptive with the name as much as possible.
Description Detailed description of the RevRec contract.
Recognition Type

Indicates the type of RevRec contract in terms of when charges are recognized. Available options are:

  • Point In Time - Revenue is recognized as soon as the charge is generated in the system.
  • Time Based - Revenue is recognized on a specified time interval such as monthly, etc.
  • Obligation Based - Revenue is recognized when certain obligations/conditions are met.
  • Prepaid On Consumption - Revenue is recognized when a purchased product is consumed. This is used for use cases such as pre-paid credits that are recognized only when the customer uses them.

 

Recognize On Indicate the instance when revenue is recognized for the Point In Time contract. This is not applicable for other types of recognition. Available options are:
  • Service Start Date - Recognized on the specified Start Date when the product is provisioned to a customer.
  • Charge Created Date - Recognized when the product charge appears on an invoice.
  • Invoice Date - Recognized when the invoice that the product charge is assigned to closes.
Schedule Interval

Applicable only for Time Based RevRec contract types. This indicates the interval on when revenue is recognized after charges are entered in the system. Available options are:

 

  • Daily
  • Weekly
  • Monthly
  • Quarterly
  • Yearly
  • Custom

 

Interval Day

Indicates the day of the week or day of the month when revenue is recognized for Time Based RevRec contract types.

  • 1 - 7 for Weekly - 1 for Mondays and 7 for Sundays.
  • 1 - 31 for Monthly and Quarterly interval types that correspond to the calendar day of the month.
  • 1 - 365 for Annual that corresponds to the day of the year where 1 is 1st January and 365 is 31st December.
  • 1 - n for Custom where it corresponds to the interval in days. Enter 19 here will have the revenue recognized every 19 days.
Number of Intervals Applicable only for Time Based RevRec contract types. This indicates the number of intervals when the recognition will be made. For example, if the charge amount is related to an annual subscription that needs to be recognized in 12 monthly cycles, the value of 12 will be entered here.
Status Indicates if the contract is active or not. If it is ACTIVE, revenue will be deferred and recognized according to the settings of the RevRec contract. If it is DEACTIVATED, revenue will not be deferred nor recognized with respect to this RevRec contract.

Create A New Revenue Recognition Obligation

This is only applicable for Obligation Based RevRec contracts. After saving your Obligation Based contract, click the Revenue Recognition Obligation child node and click New. Here you define the obligation's name and behavior. Table 2 below the example describes each field on the screen depicted below. Fill out the information and click Submit to submit the new RecRec contract.

Accessing the Obligation view
RevRec_Contract_Obligation.png
Table 2
Field Name Description
Obligation Name A unique name for the obligation. It will help to be descriptive with the name as much as possible.
Description Detailed description of the obligation.
Obligation Recognition Type

Indicates the type of recognition that will be performed. Available values are:

  • Percent - Recognized revenue is a % of the charged amount.
  • Formula - Recognized revenue is computed based on a formula.
  • Constant - Recognized revenue is a specific value.
Recognition Value Indicate the value to be recognized for this obligation. The value will be treated differently depending on the Obligation Recognition Type value selected. For example, if the Type is Percent, entering 5 means 5%. If the Type is Constant, entering 5.5 means $5.50.
Recognition Formula

Formula to be used to compute the recognition value. The platform formula language can be used here. For example, if we want to recognize half of the deferred amount of the RevRec charge, we can use the following formula:

{!Revrec_Ledger_DeferObj.TotalAmount}/2
Obligation Condition Formula

Using the platform formula language, enter the filter condition on which the obligation will be satisfied. Revenue will be recognized relative to the Recognition Formula/Value if the condition formula is satisfied.

For example, if there is a checkbox/boolean field called RecognizeMe on the ACCOUNT_PRODUCT entity record that was provisioned to a customer and we want the revenue to be recognized when this field becomes '1', we use the following formula:

{!Revrec_Ledger_DeferObj.BillingActivityIdObj.AccountProductIdObj.RecognizeMe} = '1'

The field selector button will make it easier to select the desired fields using the platform's object reference model.

Status  Indicates if the obligation rule is active or not. If ACTIVE, revenue will be recognized based on the rule. If it is DEACTIVATED, no recognition relative to this rule will take place.

Related Topics

Have more questions? Submit a request

Comments

Powered by Zendesk