Revenue Recognition Methods

Revenue recognition methods define the criteria that must be met before revenue can be recognized. In PeopleSoft Contracts, you specify revenue recognition methods for products on the Product Definition component. The associated revenue recognition method appears when you select a product onto the contract line. In your PeopleSoft Contracts business unit setup, you define your revenue management options to enable or disable a revenue recognition method override. If you selected the override check box during setup, the revenue recognition method from the product appears by default onto the contract line. You can change the method when linking the contract line to a revenue plan. You must assign contract lines to revenue plans that share the same revenue recognition method. You can assign multiple contract lines with same revenue recognition method to a single revenue plan.

PeopleSoft Contracts supports four methods of revenue recognition: As-incurred, Apportionment, Percent Complete, and Milestone. An additional method is Billing Manages Revenue. You never associate the Billing Manages Revenue method with a plan because it indicates that PeopleSoft Billing, and not PeopleSoft Contracts, manages the revenue.

Term	Definition
As Incurred	Use this method to manage revenue on an as needed basis. The As-incurred method is transaction based revenue recognition—as the activity is incurred and processed by PeopleSoft Project Costing, revenue is recognized. This is the only method used for rate-based contract lines. The advantage of managing as-incurred revenue through PeopleSoft Contracts is that you can separate revenue from billing to enable revenue recognition based on fulfillment rather than a billing schedule. Additionally, PeopleSoft Contracts enables you to place the as-incurred revenue plan on hold. This enables you to hold back revenue recognition without interrupting your billing process. You also have the option of defining events for as-incurred revenue plans. Once you have booked all revenue associated with an as-incurred revenue plan, you must manually set the revenue plan's status to Completed.
Apportionment	Use this method to recognize a fixed amount of revenue over a predefined period of time. The parameters that you define when you select Apportionment as the method include start date, end date, and schedule. You can apportion your revenue over any number of uniquely-defined time segments with a different percent applied to each period. To determine the accounting date and amount or percent of each event created, the Apportionment method also uses the system wide parameters of future period accounting date and proration method respectively; these are defined on the Contracts Definition - Processing Options page during system setup. When you click the Build Event button, the system generates the apportionment events and places them in the event grid on the revenue plan. If revenue recognition is not a straight line, you may update the percentages or amounts on the grid after the events are generated. You can define multiple proration schedules for a single revenue plan, as long as the total apportioned amount equals the total revenue plan amount. Once you have generated an apportionment schedule and built the revenue plan events for a revenue plan, the system can automatically recognize revenue according to these events. You can use the Review Revenue - Events page to view revenue activities, both booked and pending entries. You can optionally place revenue plans on hold from the Revenue Plan page. When you place a revenue plan on hold, events that would normally be booked in the next run of the Amount-based Revenue process are skipped. When you remove the hold, these events can be picked up in the next run of the process. Note: Use a schedule with a Day of the Month equal to the day of the start date that you define for your apportionment events if you want your events and schedules to be completely in sync. If the schedule's Day of the Month does not equal the day of the start date, the system will prorate the first event so that the From Date is the start date and the To Date is the day before the Day of the Month of the schedule. The system also prorates the last event, assuming you have selected an appropriate number of periods, so that the From Date is the Day of the Month of the schedule and the To Date is the end date. See Application Fundamentals: Schedules Page.
Percent Complete	Use this method to recognize revenue based on a manually entered percentage of completion or a system updated percentage of completion based on your associated project or project and activity combination. Parameters include percent completed and the accounting date for amount completed but not yet recognized. Use this method for contract lines where you are entitled to book increments of revenue at different intervals, but there is no set list of intervals or percentages. A Percent Complete revenue plan can only have one New or Ready revenue plan event at a time. Over the life of the contract line, as you receive permission to book a percentage of revenue for that contract line, you navigate to the Percent Complete revenue plan and generate a new event. Then, the system marks it Ready. Any additions to the percent complete will only update the single percent complete event in the New or Ready status. Once the event is set to In Progress, subsequent events can be created.
Milestone	Use this method to recognize a fixed amount of revenue spread over time and triggered as each milestone is met. The milestone may be a milestone defined in PeopleSoft Contracts or in PeopleSoft Project Costing. You may associate multiple milestones with the revenue plan. When you do this, you need to specify the portion of revenue that is to be recognized upon the completion of each milestone. Parameters include milestone, percent or amount to recognize, and accounting date. When associating events with milestones, you have the option of leaving the event status as New Event or setting the event status to Ready. Which status you use depends upon how much control you want to exercise over revenue recognition for a particular event. When you leave the event status at New Event, after a milestone completes, you must use the Review Revenue - Events page each period to review and select those revenue plan events that are now eligible to be booked. When you set the event status at Ready, once the milestone completes, the system books the revenue associated with that revenue plan line the next time that you run the amount-based revenue process.
Billing Manages Revenue	Use this method when PeopleSoft Billing, not PeopleSoft Contracts, manages the revenue for a contract line. Only amount–based and recurring contract lines can use this method. You must always use this method with recurring price types. With this revenue recognition method, you do not set up a revenue plan. You assign the contract line to a billing plan only. PeopleSoft Billing then recognizes revenue for the contract lines that are billed. Note: For contracts with a contract classification of Internal, the system uses Billing Manages Revenue for the revenue recognition method. Note: This method is not available if the Separate Fixed Billing and Revenue check box is selected on the contract.

This table discusses each available revenue recognition method:

	As Incurred	Percentage of Completion	Milestone	Apportionment
Basis (how to recognize revenue)	As-needed (can be scheduled).	Event-based (percent revised over time).	Event-based (percent or amount defined for each event).	Schedule-based (start and end dates known).
Amount	Rate-based (amount is based on transactions).	Fixed (amount defined in contract).	Fixed (amount defined in contract).	Fixed (amount defined in contract).
Business examples	Time & Material Consulting	Fixed-Price Consulting	Product or Fixed-Price Consulting	Maintenance on a product.

Associating a Product with a Revenue Recognition Method

When you define a product, you associate that product with a revenue recognition method. The revenue recognition method that you associate with the product depends upon the price type of the product. This table lists the four product pricing types that PeopleSoft Contracts supports:

Price Type	Description	Available Revenue Recognition Methods
Amount	Used for products that have a fixed price.	Apportionment Percent Complete Milestone Billing Manages Revenue
Percentage	Used for products that are priced as a percent of one or more contract lines. For example, technical support is often priced as a percentage of the license price for the products being licensed under the contract.	Apportionment Percent Complete Milestone Billing Manages Revenue
Rate	Used for products, such as services, that have a rate-based pricing structure, such as $400 per hour worked. The actual monetary amount is not known until the hours have been worked and reported.	As Incurred
Recurring	Used for products that have a recurring pricing structure where a start date and schedule are defined.	Billing Manages Revenue

Changing Revenue Recognition Methods

If, on the Contracts Definition - Processing Options page, you specified that the change of revenue recognition parameters is allowed, you can change a contract line's revenue recognition method when assigning a contract line to a revenue plan. If you did not enable this option, you cannot change a contract line's revenue recognition method and can only associate a contract line with a revenue plan that is of the same revenue recognition method. This restriction provides a control to keep the revenue recognition method for a particular product consistent across all contracts in which it is used for accounting purposes.

If you have enabled this option, users will be able to change the revenue recognition method of a contract line when assigning it to a revenue plan. You must make your changes on the Assign Revenue Plan page. Here are the rules regarding when you can and cannot make changes to a revenue recognition method:

• You cannot change an as-incurred revenue recognition method (because price type equals rate, and rate has only one valid revenue recognition method).

• You cannot change from or to the Billing Manages Revenue method if the contract is Active and tied to a bill plan with a status other than Pending or Ready (because PeopleSoft Billing has already begun processing).

• You cannot change the revenue recognition method on a revenue plan.

  You must first unassign the line on the Assign Revenue Plan page. Then, you can change the revenue recognition method when reassigning the line on the Assign Revenue Plan page.

• You cannot change the Billing Manages Revenue revenue recognition method for a contract line with a Recurring price type, because Billing Manages Revenue is the only valid revenue recognition method for this price type.

• You cannot change the Billing Manages Revenue revenue recognition method for a contract line with a Internal contract classification, because Billing Manages Revenue is the only valid revenue recognition method for this price type.