Revenue Recognition is a feature that allows the user to distribute over a certain period of time the revenue corresponding to a Sales Invoice.
The high level steps for implementing Revenue Recognition are :
Create a Revenue Recognition Rule Setting
Create a Revenue Recognition Rule
Assign a Revenue Recognition Rule to a Product
How Does Zumzum Financials Revenue Recognition Work?
When an invoice is posted to the ledger having a product linked to a Revenue Recognition Rule, Zumzum Financials will transfer the appropriate amount from the Revenue nominal account to the Deferred Revenue Control Account. Gradually over the revenue recognition period, the system will reverse that transfer and recognise the revenue.
The information concerning this operation can be obtained from two types of records created by the system.
1. In the invoice page navigate to the “Revenue Recognition Schedule” related list, where the system will create one Revenue Recognition Schedule Record for each invoice line item with revenue recognition associated to it.
2. This record summarizes all the transactions being created by this process posted. Please note that each of these corresponds to a Journal record that the system is also posting automatically.
3. The Revenue Recognition Schedule Record consists of two different types of transactions:
a) Deferred Revenue Transaction: this transaction will be posted on the invoice date in order to Debit the total Revenue figure and Credit the Deferred Revenue account for the same amount;
b) Revenue Recognition Transactions: these will have the opposite effect as the Deferred Revenue Transaction, in order to partially recognized the revenue over the appropriate period of time. This will be done by crediting the Revenue figure and debiting the Deferred Revenue account.
4. In the invoice page navigate to the “Journals” related list. The system will display all the Journal records posted during the process.
5. Access the Journal records by clicking on the different records, where the user can find a link to the ledger records and also obtain information such as Journal amount, tax rate, nominal accounts involved,date, etc.
How to Create a Revenue Recognition Rule Setting
1. Go to the Revenue Recognition Rule Settings tab
2. First, use the lookup to select the liability nominal account that should be used as a Deferred Revenue account (for example: Deferred Income)
3. Second, use the lookup to select the revenue nominal account that is to be use as Recognized Revenue (for example: Sales)
4. The other fields in the Revenue Recognition Rule Setting
– Rev Rec Start Date Source Object = Sales_Invoice_Line_Item__c
– Rev Rec Start Date Source Field = Revenue_Recognition_Start_Date__c
– Rev Rec End Date Source Object = Sales_Invoice_Line_Item__c
– Rev Rec End Date Source Field = Revenue_Recognition_End_Date__c5.
5. Make sure that the Revenue Recognition Rule Setting is active by checking the box.
How to Create a Revenue Recognition Rule
- Go to the Revenue Recognition Rule tab
- In the Revenue Recognition Rule list, click on the “New” button
- First, fill out the Revenue Recognition Rule Name field
- In the Revenue Recognition Type field, use the dropdown menu and select “Equal Split”
- Use the dropdown menu to assign “Monthly” as a value to the Revenue Installment Period field.
- In the Revenue Calculation Method field, use the dropdown menu and select “Straight-line, by even periods”
- Fill out the Number of Revenue Periods field to indicate how many revenue recognition transactions are to be created. By entering a zero, the system will automatically create one revenue recognition transaction every month during the Revenue Recognition period.
- In the Start Offset field, enter the number zero.
- Use the lookup to link to a Revenue Recognition Rule Setting, which should have previously been created.
- Make sure that the Revenue Recognition Rule is active by ticking the checkbox
How to assign a Revenue Recognition Rule to a Product
There are two ways of doing this:
- Go to the Products tab and click on the appropriate product record to access it.
- Navigate to the Product Revenue Recognition Rules view list and click on the “New Product Revenue Recognition Rules” button
- Use the lookup field to find the Revenue Recognition Rule that has to be linked, and assign a name in the Product Revenue Recognition Rule Name field. The product field will be automatically picked by the system.
- Go to the Revenue Recognition Rule tab, and click on the appropriate Revenue Recognition Rule record to access it
- Navigate to the Product Revenue Recognition Rules related list and click on the “New Product Revenue Recognition Rules” button.
- Use the the lookup field to find the product that has to be linked and assign a name to the Product Revenue Recognition Rule Name. The Revenue Recognition Rule field will be automatically picked by the system.