Processing Deferred Revenue Accounting Entries

This chapter provides an overview of the deferred revenue accounting process and discusses how to:

Click to jump to parent topicUnderstanding the Deferred Revenue Accounting Process

You can create and send invoices for products or services that you will deliver in the future or over a range of time. Use deferred revenue accounting to generate accounting entries that defer revenue recognition based on a revenue recognition date and proration method that you select.

The supported revenue recognition basis includes contract date, order date, ship date, and a range of dates (from/to or start/end). When you use a date range as the revenue recognition basis, you can select different methods of proration.

This section discusses:

Click to jump to top of pageClick to jump to parent topicAccounting Entries With Deferred Revenue

These examples illustrate how the system generates accounting entries with deferred revenue for the following scenarios:

Non-Deferred Revenue

Invoice details are:

Simple Deferred Revenue (Single Date for Recognizing Revenue)

Invoice details:

Complex Deferred Revenue (Date Range for Recognizing Revenue)

Invoice details:

Note. Proration of the invoice amount over accounting periods is accomplished by the proration method value Spread by Days Within Range, using the following formula: Period amount = line amount x number of days in period / number of days spanned by date range.

For example:

Period amount = 90 (line amount) x 31 (number of days in period of October) / 108 (number of days spanned by date range from 8/15 to 11/30).

Calculate debit amount of 25.83 USD to deferred revenue for 10/1/98 as follows: 90 x 31 / 108.

Click to jump to top of pageClick to jump to parent topicDeferred Revenue Proration Methods

You can establish date-range deferred revenue calculation method defaults at the system, business unit, or bill type level according to your business needs. These are the five methods for calculating deferred revenue that you define the recognition basis with a date range:

Method 1

Spread by days within range.

Method 2

Spread evenly across all periods.

Method 3

Spread evenly using a midperiod rule.

Method 4

Spread partial periods by days with remainder spread evenly.

Method 5

User-defined proration.

Method 1: Spread by Days Within Range

The system divides the number of revenue days that are in the period by the number of days that are in range. Accounting periods are based on a detail calendar. Revenue amounts may differ by period depending on the number of days that are in each period. The rounding difference is applied to the period with the largest revenue amount. For example:

Method 2: Spread Evenly Across All Periods

The system divides the total invoice line amount by the number of periods in the range. Revenue is recognized in equal portions for each accounting period regardless of the number of days in each period. The rounding difference is applied to the first period.

Invoice line amount: 12,000 USD:

Method 3: Spread Evenly Using a Midperiod Rule

The system applies rules to partially recognizable periods to determine whether they are fully recognizable or excluded from the calculations. The start and end dates, relative to the midperiod day, are used to determine whether the first and last periods are included or excluded. In the first period, if the start date is prior to the midperiod day, the entire period is fully recognizable. And, in the first period, if the start date falls after the midperiod day, no revenue is recognized. In the last period, if the end date is prior to the midperiod day, no revenue is recognized. In the last period, if the end date falls after the midperiod day, the period is fully recognizable. The rounding difference is applied to the first fully recognizable period.

Invoice details are:

In this example, the final period has nine revenue days. The system calculates the midperiod day of period 13 by dividing the number of days that are in the accounting period (30) by two. The midperiod day in period 13 is the 15th day of the period. Because nine is less than the midperiod day, no revenue is recognized in period 13.

Method 4: Spread Partial Periods by Days With Remainder Spread Evenly

The system calculates recognized revenue in steps. First, the system prorates partial periods by dividing the total number of days in the period by the total number of days in range. The revenue that is recognized for partial periods is deducted from the total. The remainder revenue is divided equally between the total number of fully recognizable periods.

Invoice details:

Note. If you use this proration method, the BI_ACCT_ENTRY monthly values will not be identical to the original bill when you create credits in a month different than the original invoice.

Method 5: User-Defined Proration

Define the user-defined proration method to meet your specific business needs.

Click to jump to parent topicCommon Elements Used in This Chapter

Revenue Days

The days in an accounting period during which revenue is recognizable. For example, you have a service contract that ranges from January 1, 2003 through February 15, 2003 with deferred revenue distribution based on a monthly detail calendar. The number of days in the accounting period for February 2003 is 28, and the number of revenue days is 15.

Fully Recognizable Period

An accounting period in which the number of revenue days equals the number of days that are in the period.

Partially Recognizable Period

An accounting period in which the number of revenue days is less than the number of days that are in the period.

Mid-period Day

The day in an accounting period that determines whether the accounting period is fully recognizable or not recognizable at all. The midperiod day applies only when calculating deferred revenue by method 3 (spread evenly using a midperiod rule.) You can specify the midperiod day, or you can enable the system to assign the date. The system defines the midperiod day by dividing the number of days in the accounting period by two and rounding to the nearest whole number.

Remainder Revenue

The amount of revenue remaining after revenue that is assigned to a partially recognizable period is subtracted from the total revenue amount. Remainder value applies only when you calculate the deferred revenue by method 4: spread partial periods by days with the remainder spread evenly.

Click to jump to parent topicSetting Up Deferred Revenue Accounts

Use these procedures to enable deferred revenue accounting and to enable deferred revenue recognition (optional).

To enable deferred revenue accounting:

  1. Ensure that a detail calendar exists for the primary ledger group that is associated with the general ledger business unit.

    Use the Ledgers For A Unit - Definition page to set up as many detail calendars as you need to accommodate any combination of accounting periods that you need. Use the same detail calendar as a reference for the Journal Generator that you use for deferred revenue distribution.

    Ensure that the detail calendar includes a period for the oldest transaction that you want to enter. After installing the PeopleSoft system, you may want to make this earliest date more restrictive.

    Note. If you enable the deferred revenue recognition feature, you must define detail calendars far enough into the future to accommodate any deferred accounting period that you need to use.

  2. Enable deferred revenue, and select a proration method in billing installation options on the Installation Options - Billing - GL/AR Options page.

    Set the default level to system, business unit, or bill type. In the Deferred Revenues Options group box, select the Enable Deferred Revenues check box, set the future period accounting dates parameter, and select a proration method.

    If you define the GL options at the business unit level (meaning you selected the Business Unit radio button on the Installation Options - Billing GL/AR Options page), select Enable Deferred Revenues, and define the Future Period Accounting Dates parameter on the Billing Definition - Business Unit 2 page.

    If you define GL options at the installation level (meaning you selected the System radio button on the Installation Options – Billing GL/AR Options page), select Enable Deferred Revenues and define the Future Period Accounting Dates parameter on the Installation Options – Billing GL/AR Options page.

    If you define the GL options at the bill type level (meaning you selected the Bill Type radio button on the Installation Options – Billing GL/AR Options page), select Enable Deferred Revenues and define the Future Period Accounting Dates parameter on the Bill Type 2 page.

    Note. The Enable Deferred Revenues Flag option is available for entry only if, in the GL Options group box on the Installation Options - Billing - GL/AR Options page, you select the value BI Creates GL Acct Entries (Billing creates general ledger accounting entries). If the GL Options are at the system level, the deferred parameters are available for entry on this page.

To enable deferred revenue recognition (optional):

  1. Set up deferred revenue distribution codes on the Distribution Code page.

    Deferred revenue distribution codes simplify the process of generating accounting entries by defining a valid combination of ChartField values.

  2. Relate deferred distribution codes to revenue, discount, or surcharge codes on the Distribution Code page.

    Deferred distribution codes—deferred revenue, deferred discount, and deferred surcharge—can be related to regular distribution codes—revenue, discount, and surcharge—overlaying any previously defaulted deferred distribution information. When you enter a revenue, discount, or surcharge distribution code related to a deferred distribution code, the system automatically assigns the deferred distribution code and its associated ChartFields.

    Note. This automatic override occurs only if the bill line is subject to deferred accounting.

    For example, if a bill line is subject to deferred revenue recognition, the default deferred accounting distribution information comes first from the bill type. If you assign the regular account distribution to distribution code ID REV W/DFR (distribution identification code revenue with deferred revenue), the distribution ID DFR REV (distribution identification code deferred revenue) overrides the deferred account distribution information.

  3. Create deferred revenue defaults.

    Use the Billing Options - Billing Business Unit Options page to set the business unit level default for the deferred distribution code, and use the Bill Type 2 page to set the default deferred revenue options at the bill type level.

  4. Establish default revenue recognition basis.

    The revenue recognition basis takes its default value from either the bill type or the charge identifier level. Access the Bill Type 2 page to establish the default revenue recognition basis at the bill type level. Access the Charge Code page to establish the revenue recognition basis at the charge identifier level.

See Also

Defining Bill Types

Setting Up Distribution Codes

Setting Up PeopleSoft Billing Charge Codes

Establishing PeopleSoft Billing Business Unit Options

Defining Additional Billing Installation Options

Click to jump to parent topicGenerating Deferred Revenue Accounting Entries

This section discusses how to:

Click to jump to top of pageClick to jump to parent topicEntering Bills With Deferred Revenue Accounting Entries

To enter a bill with deferred revenue accounting parameters:

  1. Ensure that you select the Enable Deferred Revenue Flag on the Installation Options - Billing - GL/AR Options page.

  2. Set the revenue recognition basis on the Standard Billing - Line - Info 2 page to something other than blank or invoice date.

    If you established a revenue recognition basis at the bill type or at the charge identifier level, the system uses that value as a default. You can override the default on this page

  3. Enter a revenue recognition basis date or date range for a future accounting period.

    The page that you use to enter the date or date range depends on the revenue recognition basis that you select on the Standard Billing - Line - Info 2 page. Options are:

    If the Revenue Recognition Basis is:

    Enter the date or date range on:

    From/To Date.

    Standard Billing - Line - Info 1 page.

    Contract Date.

    Standard Billing - Line - Info 2 page in Contract/Date field.

    Invoice Date.

    Standard Billing - Header - Info 1 page.

    Order Date.

    Standard Billing - Line - Order Info page in the Ord Date (order date) field.

    Ship Date.

    Standard Billing - Line - Order Info page in the Ship Date field.

    Start/End Date Range.

    Standard Billing - Line - Project Info page in the Start Date and End Date fields.

    User Date 1.

    Standard Billing - Line - Misc Info page.

    User Date 2.

    Standard Billing - Line - Misc Info page.

  4. Establish deferred account distribution information.

    If you establish deferred revenue distribution codes on the Distribution Code page, those values are used as the default values on the Standard Billing - Acctg - Deferred page. You can override the bill line deferred account distribution information by entering a deferred type distribution code or specific ChartField information.

  5. Enter deferred account distribution codes for discounts and surcharges, if present.

    If you establish deferred account distribution codes for discounts and surcharges on the Distribution Code page, you can override the defaults by entering ChartField information on the Standard Billing - Disc/Surcharge Distribution page or by entering a distribution code on the Standard Billing - Discount/Surcharge page.

See Also

Entering Bill Line Information

Entering Bill Header Information

Entering Discount Distribution and Surcharge Distribution ChartField Information

Defining Additional Billing Installation Options

Click to jump to top of pageClick to jump to parent topicFinalizing Bills and Generating Deferred Revenue Accounting Entries

To generate deferred revenue accounting entries:

  1. Change the bill status to RDY on the Standard Billing - Header - Info 1 page.

  2. Run the Bill Finalization process (BIIVC000) to create the invoice, and change the bill status to INV.

  3. Run the Currency Conversion process (BICURCNV) to calculate base and euro currency values and store them in the currency for the bill.

  4. Run the Pre-load process (BIPRELD) to prepare accounting information for subsequent processing.

  5. Run the Load GL (general ledger) process (BILDGL01).

    The Load GL process generates accounting entries for current and all future accounting periods. The Load GL process does not pass to the general ledger any statistical data entries that are prorated into future periods.

Note. The general ledger system must be set up to accommodate deferred revenue accounting entries. For example, it must accept future-dated entries or it must bypass them until the appropriate accounting periods.

See Also

Entering Bill Header Information

Tracking Statistical Data in PeopleSoft Billing

Running the Pre-Load Process

Running the Load GL Accounting Entries Process (BILDGL01)

Running the Pro Forma, Finalization, Print, and Reprint Processes

Running the Budget Checking Process

Click to jump to parent topicCrediting and Rebilling Adjustments on Deferred Revenue Bills

The system processes credits and credit/rebills in deferred revenue situations by:

This feature ensures correct balancing and eliminates extraneous data.