Revenue Recognition Adjustments for September

When you generate the journal entries for invoices, the system also generates adjustment journal entries for revenue recognition. The system uses the workfile transactions in the invoice batch to determine whether it must create any applicable adjustments to the prior journal entries for revenue recognition. Adjustments can occur for various reasons, such as:

You have not included invoiced workfile transactions for the current batch in a prior revenue journal.
The information for the workfile transaction, such as the object account, cost amount, or eligibility code, has changed from when you originally included it in a revenue batch.

The invoice was processed prior to the end of the month. Revenue has not been calculated for the 172.50 workfile transaction that was included in the invoiced amount. The system created this adjustment journal entry for revenue recognition:

G/L Date	Account	Debit	Credit
September 25, 2005	Accrued Accounts Receivable	172.50
September 25, 2005	Actual Revenue		(172.50)

After you post the adjustment, the amount for actual revenue equals the amount for accounts receivable, and the variance for accrued accounts receivable self-corrects.

This illustration shows the T-account postings in the general ledger:

Revenue recognition adjustments for September T-account postings for example 3

The system uses these AAIs to direct the system to create the journal entries:

Billing AAI table number 4832 directs the system to the base rules for the accrued accounts receivable account.
It creates a debit journal entry for the revenue recognition amount.
Billing AAI table number 4811 directs the system to the base rules for the actual revenue account.
It creates a credit journal entry for the revenue recognition amount.

Note: Generally, during each month, a company processes multiple invoice batches. Depending on company policy, revenue recognition might be processed more than once a month. Timing differences always occur between revenue recognition and invoice processing. Therefore, the account for accrued accounts receivable would contain a variance amount and would not equal zero each month.