Contract Asset
PeopleSoft Contracts manages revenue separately from PeopleSoft Billing by using contract asset accounting distributions. You establish an contract asset distribution code at either the PeopleSoft Contracts business unit level (mandatory) or lower at the product group level (optional).
Note:
You do not define contract asset accounting distributions for recurring contract lines because billing manages revenue for this price type.
This section discusses contract asset accounting for:
-
Amount-based contract lines
-
Rate-based contract lines
Amount-based Contract Lines
If a contract line's product is associated with a product group for which an contract asset distribution code is defined, the system writes that contract asset accounting distribution to the Accounting Distribution page for that contract line. The contract asset accounting distribution for a contract line is editable on the Accounting Distribution page. The GL Unit field is populated with the PeopleSoft General Ledger business unit associated with the PeopleSoft Contracts business unit of the contract. When you save the Accounting Distribution page, the system performs combination editing to ensure that the contract asset distribution that you specify is valid for the PeopleSoft General Ledger business unit. When PeopleSoft Contracts manages revenue, contract asset is debited when you credit either revenue or contract liability. Contract asset is credited when the bill is generated (PeopleSoft Billing debits AR). Contract asset is not used if PeopleSoft Billing manages revenue. Because contract asset is populated and depleted throughout the life of the contract line, its distribution on the Accounting Distribution page cannot be changed after the contract is activated. In addition, you can specify only one line of contract asset accounting distribution. The amount used to debit the contract asset account during revenue recognition may be different from the amount used to credit the contract asset account during billing if revenue and billing are separated on the contract. The revenue amount on the contract line is used to debit contract asset during revenue recognition and the billing amount is used to credit contract asset during billing. Additionally, since revenue plans and billing plans work independently, amounts used to debit and credit contract asset are also impacted by the number of events on the billing plans and revenue plans and the timing and amounts of those events.
For example: Best Customer Corporation is installing PeopleSoft Contracts and it wants to recognize all contract asset by business unit, except for contract asset from services. Best Customer Corporation sets up contract asset for all PeopleSoft Contracts business units. Best Customer Corporation also sets up contract asset for the services-related product groups. Best Customer Corporation does not set up any contract asset accounting distribution for product groups that are not related to services:
| Business Unit (BU) | Product Group (PC) | Contract Asset Account |
|---|---|---|
|
M04 |
|
129999 |
|
M02 |
|
128000 |
|
|
Services |
120000 |
This table lists the results of combinations of PeopleSoft Contracts business units and product groups based on the previous setup:
| Business Unit | Product Group | Contract Asset Account |
|---|---|---|
|
M02 |
Fee |
128000 |
|
M02 |
Maintenance |
128000 |
|
M02 |
Product |
128000 |
|
M02 |
Service |
120000 |
|
M04 |
Fee |
129999 |
|
M04 |
Maintenance |
129999 |
|
M04 |
Product |
129999 |
|
M04 |
Service |
120000 |
When you select a product onto a contract line, the product's contract asset account information is stored on the contract line as a part of the contract line's accounting distribution. This ensures that the contract asset account information existing for a product at the time it was selected onto a contract line does not change, even if the contract asset information defined at the business unit or product group level is subsequently changed.
Rate-based Contract Lines
For rate-based contract lines, the contract asset is stored in two places to be used in these ways:
-
Rate-based contract lines assigned to as-incurred billing plans use contract asset from the Accounting Rules page (As Incurred Accounting Distribution).
-
Rate-based contract lines assigned to value-based billing plans use contract asset from two different locations.
For billing, the system uses contract asset from the Accounting Distribution page. The revenue process uses the contract asset from the Accounting Rules page. The system uses contract asset from two different locations because the accounting rules accounting distribution is defined across the application by Projects ChartFields, whereas the accounting distribution is defined for amounts in a value-based billing plan for a particular contract line.
Note:
The contract asset values on the Accounting Distribution page come from either the product group or the contracts business unit. The system populates the values for the contract asset accounting distribution from the product group level first. If there is no value specified at that level, the system looks for the contract asset at the business unit level.
Note:
It is recommended that the setup for contract asset in the accounting rules and on the Accounting Distribution page be the same for rate-based activity to avoid accounting discrepancies. If two contract asset distributions are used, the user must balance the two by making adjustments on the Revenue and Billing Reconciliation page.