Revenue Recognition and Allocation in the Transaction Currency
When engaged in commerce in currencies other than your local currency, you can create revenue contracts in the order's transaction currency. The transaction currency amounts are then used as the basis for revenue allocation and recognition for the revenue contract.
The transaction price and standalone selling prices in the transaction currency are used to drive the allocation of revenue. The revenue contract is modeled and displayed in the transaction currency. Then, when you create the accounting for the revenue contract, the application converts the amounts in the entered currency to the ledger currency using the applicable conversion rate type, date, and rate.
If terms and conditions dictate that payment for goods and services are to be made in full in advance, you've the option to designate the foreign currency treatment to be used on the performance obligation as monetary or nonmonetary. This designation indicates that a performance obligation's contract liability is converted using either:
- Current rates (monetary)
- Historic rates (nonmonetary)
Allocation Currency Basis Option
Use the Allocation Currency Basis option in the Manage System Options for Revenue Management page to enable the option to use transaction currency revenue allocation and recognition for your revenue contract process.
This option is a ledger-based option and designates the allocation currency basis to be used to drive revenue allocation and recognition calculations for revenue contracts created within the ledger. Once you select and save your preferred method, this method is applied to new and unprocessed lines from that point forward. Contracts created before the change will continue to be processed using the basis in effect at the time of contract creation for the life cycle of the contract.
Set the Allocation Currency Basis option to either Entered or Accounted:
- Entered: When you set this option to Entered, the application models the revenue contracts and underlying performance obligations using the transaction currency amount of the source document lines as the driving values for the allocations. The application establishes and allocates the contract and performance obligations in the transaction currency amounts. This applies to both ledger and nonledger currency-denominated transactions for the selected ledger.
- Accounted: When you set this option to Accounted, nonledger currency-denominated contracts are converted to the ledger currency at contract inception. In this case, the application establishes the contract consideration in the ledger currency. This amount is used as the basis for revenue allocation and recognition.
Performance Obligation Foreign Currency Treatment Attribute
Use the Performance Obligation Foreign Currency Treatment attribute to indicate whether a performance obligation is to be accounted for as monetary or nonmonetary. The assignment is performed during the Performance Obligation Identification process.
Set the Foreign Currency Treatment option for the rule as either Monetary or Nonmonetary in the Manage Performance Obligation Identification Rules page.
- Nonmonetary: Nonmonetary performance obligations are paid in full up front and the amount of revenue to be recognized is fixed and not subject to fluctuation in changes in currency conversion rates. In this case, the application converts all the accounting distributions for the performance obligation's contract liability to the accounted currency using the conversion rate as of the performance obligation's initial performance date, regardless of the date of occurrence.
- Monetary: Monetary performance obligations aren't paid in full up front. In this case, the contract liability account balances are converted as of the transaction date.
You then select the extensible attribute as a grouping attribute within the identification rule to assign the foreign currency treatment.
You can view the Foreign Currency Treatment designation for performance obligations within a revenue contract in the Edit Customer Contract page.
Conversion Rate Type and Rates
When you create the accounting distributions for a revenue contract, the application uses the existing settings for the Conversion Rate Type and the Disable Override from Source option that you specified on the Manage System Options for Revenue Management page.
The application uses the conversion rate types and rates defined and maintained within the Oracle General Ledger daily rates structure.
When you run the Recognize Revenue for Customer Contracts process, the process creates accounting distributions and converts them, if necessary. If no conversion rate is defined in the General Ledger daily rates table for the conversion rate type and date, the process doesn't convert the accounting distributions and generates a warning message in the output file of the process. The next time you run the process, the application reprocesses the unprocessed distributions until it finds a rate to convert the distribution. The unprocessed distributions are then eligible for processing by Oracle Subledger Accounting and posting to General Ledger.
Thresholds
You can set up three types of thresholds in Oracle Revenue Management:
- Transaction Price Exemption
- Discount Exemption
- Transaction Price Review
Revenue Management displays the revenue contracts that meet the thresholds in the applicable Revenue Management work area tab.
If you've thresholds defined when using this approach, threshold application and evaluation is based on the applicable accounted amount of the contract derived using the conversion rate at contract inception. The amount entered in the threshold column represents the ledger currency equivalent of the threshold amount.