Products Managing Revenue
You can recognize revenue associated with a contract either through PeopleSoft Contracts or PeopleSoft Billing. You designate which product manages revenue for each individual contract line. By using PeopleSoft Contracts as the default product to manage contract revenue, you have a higher degree of flexibility and control in managing your revenue. By selecting PeopleSoft Billing as the default product to manage contract revenue, you can speed up contract entry by only entering minimal contract information into the system, and recognizing the revenue through PeopleSoft Billing at the time the bills are finalized. However, when you do this, you lose many revenue management and tracking features that would be available if you were using the default, PeopleSoft Contracts, as the product to manage revenue.
When you define products in PeopleSoft Contracts, you specify the revenue recognition method for that product. The revenue recognition method appears by default to the contract line and may or may not be overwritten depending on system setup. When you select a revenue recognition method of apportionment, milestone, or percent complete, PeopleSoft Contracts manages the flow of revenue. When you select billing manages revenue as the revenue recognition method, PeopleSoft Billing manages the flow of revenue.
This section discusses:
Accounting entries in PeopleSoft Contracts.
Accounting entries in PeopleSoft Billing.
Accounting distributions when PeopleSoft Contracts manages revenue.
Accounting distributions when PeopleSoft Billing manages revenue.
Accounting distribution source.
When you set up a contract, you associate that contract with a PeopleSoft Contracts business unit. The PeopleSoft Contracts business unit is associated with a PeopleSoft General Ledger business unit; associating a PeopleSoft Contracts business unit with a PeopleSoft General Ledger business unit is a required step in the PeopleSoft Contracts business unit setup. A contract derives its PeopleSoft General Ledger business unit from its PeopleSoft Contracts business unit.
When you select a product onto a contract line, the system writes the distribution codes for that contract line to the line's accounting distribution definition. Distribution codes do not include the PeopleSoft General Ledger business unit. The contract's General Ledger business unit appears by default on the contract line's accounting distributions. You can change the PeopleSoft General Ledger business unit on the revenue accounting distribution. If the line's General Ledger business unit differs from the contract's General Ledger business unit, the system generates interunit accounting entries. However, the PeopleSoft General Ledger business unit for the contract liability and contract asset accounting distributions must be the same as the PeopleSoft General Ledger business unit associated with a PeopleSoft Contracts business unit.
You associate each contract line with a billing plan. You associate each billing plan with a PeopleSoft Billing business unit; the system limits the valid PeopleSoft Billing business units to those that share the same PeopleSoft General Ledger business unit as the contract's PeopleSoft Contracts business unit.
When the system generates billing activity for a billing plan, each bill row sent to PeopleSoft Billing is associated with its billing plan's PeopleSoft Billing business unit. PeopleSoft Billing then generates accounting entries based on the PeopleSoft General Ledger business unit that is mapped to the bill row's PeopleSoft Billing business unit. Because the system has enforced the rule that the PeopleSoft Billing business unit must share the PeopleSoft General Ledger business unit with the PeopleSoft Contracts business unit, the accounting entry that is made by PeopleSoft Billing for this bill row hits the same PeopleSoft General Ledger business unit as the accounting entry that was made by PeopleSoft Contracts for this contract line. No interunit entries are generated for accounting done from PeopleSoft Billing as it relates to PeopleSoft Contracts activity. Thus, if a contract line is designated for PeopleSoft Billing to manage revenue, the PeopleSoft General Ledger business unit is unavailable on the revenue accounting distribution for that contract line.
Use PeopleSoft Contracts to manage revenue when you want to book revenue on a different schedule (or under different rules) than when you bill for that contract line. The flow of accounting entries for fixed-amount contract lines depends upon whether you select to book contract revenue to contract liability.
Accounting Distributions for Fixed-Amount Contract Lines with Contract Liability Entries
After a contract has been activated, the Contract Liability process creates the following accounting entry for each active fixed-amount and percent-based contract line:
|
Account |
Debit |
Credit |
|---|---|---|
|
Contract Asset Account |
100 |
|
|
Contract Liability Account |
100 |
Note: The Contract Liability process picks up all active fixed-amount contract lines with contract liability enabled on an active contract, regardless of whether you have associated these contract lines with a revenue plan. The revenue amount on the contract line is used for this accounting entry.
Once the contract line is assigned to a revenue plan and the plan contains a ready event, the Amount-based Revenue process creates the following accounting entry, moving the USD 100 from deferred to real revenue:
|
Account |
Debit |
Credit |
|---|---|---|
|
Contract Liability Account |
100 |
|
|
Revenue Account |
100 |
Once the contract line is assigned to a billing plan and the plan contains a ready event (in the case of milestone and percent complete plans), the CA_BI_INTFC process sends the contract asset accounting distribution associated with the contract line to PeopleSoft Billing. PeopleSoft Billing creates the following accounting entry, moving the USD 100 from Contract Asset to Billed AR:
|
Account |
Debit |
Credit |
|---|---|---|
|
AR Account |
100 |
|
|
Contract Asset Account |
100 |
The final step in the process is to collect cash for your outstanding invoices. Once cash is received, the following entry is made in PeopleSoft Receivables, moving the USD 100 from Billed AR to Cash:
|
Account |
Debit |
Credit |
|---|---|---|
|
Cash Account |
100 |
|
|
AR Account |
100 |
Accounting Distributions for Rate-based Contract Lines and Fixed-Amount Contract Lines with No Contract Liability Entries
Once an active contract line on an active contract is assigned to a revenue plan and the plan contains a ready event (optional in the case of as-incurred plans), the amount-based or rate-based revenue process creates the following accounting entry:
|
Account |
Debit |
Credit |
|---|---|---|
|
Contract Asset Account |
100 |
|
|
Revenue Account |
100 |
Once the contract line is assigned to a billing plan and the plan contains a ready event (optional in the case of as-incurred plans), the CA_BI_INTFC process sends the contract asset accounting distribution associated with the contract line to PeopleSoft Billing. PeopleSoft Billing creates the following accounting entry, moving the USD 100 from Contract Asset to Billed AR:
|
Account |
Debit |
Credit |
|---|---|---|
|
AR Account |
100 |
|
|
Contract Asset Account |
100 |
The final step in the process is to collect cash for outstanding invoices. Once cash is received, the following entry is made in PeopleSoft Receivables, moving the USD 100 from Billed AR to Cash:
|
Account |
Debit |
Credit |
|---|---|---|
|
Cash Account |
100 |
|
|
AR Account |
100 |
When PeopleSoft Billing manages revenue recognition for fixed-amount or recurring contract lines, PeopleSoft Contracts does not make any accounting entries. Revenue recognition for a contract line occurs upon booking the entries to PeopleSoft General Ledger after the bill finalization. Billing and revenue recognition occur at the same time.
Accounting Distributions for Fixed-Amount and Recurring Contract Lines with No Contract Liability Entries
Once an active contract line on an active contract is assigned to a billing plan and the plan contains a ready event (in the case of milestone and percent complete plans), the CA_BI_INTFC process sends the revenue accounting distribution associated with the contract line to PeopleSoft Billing. PeopleSoft Billing creates the following accounting entry, booking revenue, and billed AR simultaneously:
|
Account |
Debit |
Credit |
|---|---|---|
|
AR Account |
100 |
|
|
Revenue Account |
100 |
The final step in the process is to collect cash for outstanding invoices. Once cash is received, the following entry is made in PeopleSoft Receivables, moving the $100 from AR Account to Cash:
|
Account |
Debit |
Credit |
|---|---|---|
|
Cash Account |
100 |
|
|
AR Account |
100 |
Accounting Distributions for Recurring Contract Lines with Contract Liability Entries
In the following example for contract liability, the bill for service during the month of September is sent out in August. However, the revenue is recognized in September.
The bill for service is sent out during the month of August:
|
Account |
Debit |
Credit |
|---|---|---|
|
AR Account |
100 |
|
|
Contract Liability Account |
100 |
Revenue is recognized in September:
|
Account |
Debit |
Credit |
|---|---|---|
|
Contract Liability Account |
100 |
|
|
Revenue Account |
100 |
When the system prepares billing activity for the PeopleSoft Billing Interface tables, the process needs to know what distribution entries need to be created for each bill line. In the case of fixed-amount billing, the source of accounting information depends on the product (PeopleSoft Contracts or PeopleSoft Billing) that is managing revenue for the bill line. In the case of rate-based billing, the source of accounting information is always the same because PeopleSoft Contracts always manages the revenue. In the case of recurring billing, the source of accounting information is always the same because PeopleSoft Billing always manages the revenue.
This table lists accounting scenarios:
|
Source of Accounting Entries |
Scenario #1: Contract Liability (revenue managed from Contracts) |
Scenario #2: Contract Asset Without Contract Liability (revenue managed from Contracts) |
Scenario #3: Contract Asset Without Contract Liability (revenue managed from Billing) Amount-based contract lines |
Scenario #4: Contract Liability (revenue managed from Billing) Recurring contract lines |
|---|---|---|---|---|
|
Entries created by contract liability process in PeopleSoft Contracts. |
DB Contract Asset CR Contract Liability |
None |
None |
None |
|
Entries created by revenue management in PeopleSoft Contracts. |
DB Contract Liability CR Revenue |
DB Contract Asset CR Revenue |
None |
None |
|
Entries created by PeopleSoft Billing upon the generation of the invoice. |
DB Billed AR CR Contract Asset |
DB Billed AR CR Contract Asset |
DB Billed AR CR Revenue |
DB Billed AR CR Contract Liability DB Contract Liability CR Revenue |
Note: It is recommended that you do not use PeopleSoft Billing for deferred contract revenue except in the case of recurring contract lines. For recurring contract lines, PeopleSoft Billing manages revenue and handles all contract liability processing. The information sent to PeopleSoft Billing for rate-based contract lines is always the same.
When PeopleSoft Contracts Manages Revenue
Fixed-amount billing methods derive the contract asset account from the CA_DETAIL_UAR table. In addition, as-incurred contract lines with the value-based billing method derive the contract asset account from the CA_DETAIL_UAR table. Although the contract asset distribution for each contract line is stored in this table, it may appear by default from the product group and/or the PeopleSoft Contracts business unit associated with the contract. This enables you to maintain contract asset accounting distribution data consistently for a particular PeopleSoft Contracts business unit or populate it by default consistently from the product group associated with the products. You may override the contract asset accounting distribution information on the Accounting Distribution page for each contract line.
Note: As-incurred contract lines not using the value-based billing method derive their contract asset distribution from accounting rules on the As-Incurred Accounting Distribution page.
When PeopleSoft Billing Manages Revenue
Only the fixed-amount billing methods (Milestone, % Complete, and Immediate) and the recurring billing method may be associated with contract lines that allow PeopleSoft Billing to manage revenue. The revenue distribution in these cases is stored in CA_DETAIL_DST. Each contract line has one or more accounting distribution lines associated with it. You can set up this information for each product in the product table by using distribution codes and distribution sets. The distribution for the product appears by default in the CA_DETAIL_DST table when you select the product onto a contract line. You can then override part or all of the revenue accounting distribution manually.
Contract Liability When PeopleSoft Billing Manages Revenue
The Billing Interface allows interfacing systems to define bill lines in a manner that qualifies them for contract liability processing within PeopleSoft Billing. The contract liability flag on the contract line defines whether or not contract liability processing is active in the Billing Load to GL process. If the option is inactive, this processing does not occur. This does not affect the Contracts Billing Interface process. If this option is active, it enables you to use the contract liability functionality in PeopleSoft Billing. Note that this contract liability isn't reflected in the PeopleSoft Contracts revenue management pages.
Note: When PeopleSoft Contracts manages revenue recognition, the revenue recognition basis is passed to the billing interface as INV (INTFC_BI.REV_RECOG basis = 'INV' Invoice date)—excluding these lines from deferred processing in PeopleSoft Billing.
Note: When PeopleSoft Billing manages revenue for recurring contract lines with contract liability, PeopleSoft Contracts sends the revenue recognition basis to the billing interface and populates the CHARGE_FROM_DT and CHARGE_TO_DATES.