5Manage Revenue for Receivables

This chapter contains the following:

Process Revenue for Receivables

Run the Recognize Revenue process to generate the revenue distribution records for invoices and credit memos that use invoicing and revenue scheduling rules. Revenue scheduling rules determine the number of periods and the percentage of total revenue to record in each accounting period. Invoicing rules determine when to recognize the receivable for invoices that span more than one accounting period.

The Recognize Revenue process selects all transactions that have invoicing and revenue scheduling rules and that haven't yet been processed since the last submission of the process. This includes new transactions, unprocessed transactions, and partially processed transactions. The Recognize Revenue process creates the revenue distribution records for all accounting periods specified by the revenue scheduling rule on each transaction line.

Creation of Revenue Distributions

The Recognize Revenue process creates distribution records for invoices and credit memos both created manually and imported using AutoInvoice. The Recognize Revenue process uses the accounting distributions defined by AutoAccounting to determine the accounts for the revenue distribution records. If a transaction contains a deferred revenue scheduling rule, then the Recognize Revenue process instead creates the distribution records for the specified unearned revenue account. Deferred revenue is later recognized according to the contingencies associated with the particular transaction.

The Recognize Revenue process also creates the receivable, tax, freight, and AutoInvoice clearing account assignments which correspond to the accounting date of each transaction included in the process submission.

Note: The Recognize Revenue process creates accounting distributions for all periods of status Open, Future, or Not Open. If any period has a status of Closed or Close Pending, then the Recognize Revenue process creates the distributions in the next Open, Future, or Not Open period.

If you later decide that the revenue distributions need to be reclassified, you can update the individual revenue distribution on the transaction. Receivables automatically creates the necessary reverse accounting entries.

Each run of the Recognize Revenue process generates a Revenue Recognition Execution report. Use this report to review the details of revenue recognition on your transactions, as well as any records that failed processing.

Review of Unprocessed or Partially Processed Transactions

The Revenue Recognition Execution report contains a section called Unprocessed or Partially Processed Transactions, for transactions that failed processing for revenue recognition.

A transaction can fail revenue recognition processing either partially or completely:

  • Partially Processed Transactions: If some but not all of the transaction lines are successfully processed, then the transaction appears as Partially Processed. For example, if processing succeeded for lines 1 and 2 of an invoice that has 3 invoice lines, the report displays one record for line number 3 with the accompanying line details.

  • Unprocessed Transactions: If all of the transaction lines weren't processed, then the transaction appears as Unprocessed. For example, if processing failed for all 3 lines of an invoice, the report displays three record entries, one for each line, with the accompanying line details.

The main reason for failure to process revenue on a transaction or transaction line is data corruption on the transaction. Two examples of data corruption are:

  • Incorrect accounting period on the transaction.

  • Missing data needed to process revenue recognition on the transaction.

Review of Transactions with Invalid Accounts

The Revenue Recognition Execution report contains a section called Transactions with Invalid Accounts, for transactions that were successfully processed for revenue recognition but contained invalid revenue accounts.

Note: The Transactions with Invalid Accounts section only appears on the execution report when the Recognize Revenue process is submitted in Summary mode.

This section lists all successfully processed transaction lines that have invalid revenue accounts.

An invalid revenue account doesn't prevent the processing of transactions and transaction lines for revenue recognition. If a transaction contained transaction lines that failed processing for revenue recognition, then the failed transaction lines appear instead in the Unprocessed or Partially Processed Transactions section. In this case, the same transaction number may appear on both sections of the report, if there were both transaction lines that failed processing and transaction lines that were processed successfully but with invalid revenue accounts.

Revenue scheduling rules determine the number of accounting periods and percentage of total revenue to record in each accounting period for a transaction. When you use deferred revenue scheduling rules, the Recognize Revenue program creates a single distribution per line that posts to an unearned revenue account. You later earn the revenue either when a contingency expires or by manually scheduling the revenue.

You can use deferred revenue scheduling rules only for invoices that are assigned the In Advance invoicing rule. If you use a deferred revenue scheduling rule with a single accounting period, Receivables recognizes the revenue in the period that you specify.

If you use a deferred revenue scheduling rule with multiple accounting periods, Receivables creates the revenue recognition schedule based on the rule, and the start date is determined by the accounting start date that you provide. If the accounting start date occurs in a closed accounting period, Receivables posts that portion of revenue into the subsequent open accounting period.

If you use a non-deferred revenue scheduling rule with multiple accounting periods, Receivables uses the schedule created by the Recognize Revenue program. If an accounting period is closed, Receivables posts that portion of revenue into the subsequent open accounting period.

The following examples illustrate revenue recognition with deferred and non-deferred revenue scheduling rules.

Revenue Recognition with a Deferred Revenue Scheduling Rule

This table illustrates revenue recognition on a $300 invoice with a 3-month deferred revenue scheduling rule and an original start date of February 2. In this example, all accounting periods are open.

Accounting Date February March April May

February 2

$100

$100

$100

$0

March 2

$0

$100

$100

$100

The February 2 row shows what the original revenue recognition schedule is if the revenue scheduling rule is not deferred. However, because the rule is deferred, Receivables creates a single distribution line that posts to an unearned revenue account when you run the Recognize Revenue program.

You can then earn the revenue on this invoice, but you enter March 2 as the accounting start date. Receivables honors the original schedule, illustrated by the February 2 row, but ignores the original start date from the transaction and uses the March 2 accounting date that you entered. This shifts the schedule by one month, as illustrated by the March 2 row.

Revenue Recognition with a Non-Deferred Revenue Scheduling Rule

This table illustrates revenue recognition on a $300 invoice with a 3-month non-deferred revenue scheduling rule. In this example, February is at first open, but is later closed before you can finish adjusting the invoice revenue.

Accounting Date February March April May

February 2

$100

$100

$100

$0

March 2

$0

$200

$100

$0

The February 2 row shows the original revenue recognition schedule that Receivables creates when you first run the Recognize Revenue program. At this stage, February is open.

You then discover that the schedule was incorrect, so you unearn and then correctly re-earn the invoice revenue. When you re-earn revenue on invoices with non-deferred revenue scheduling rules, Receivables uses the original schedule, as illustrated by the February 2 row.

But because February is now closed, Receivables posts the February allocation to March, as illustrated by the March 2 row.

FAQs for Process Revenue for Receivables

If you set up a revenue policy, Receivables assigns revenue contingencies to any transaction or transaction line that violates the policy, and defers revenue on these transactions or transaction lines.

There are three policy areas that can cause the assignment of revenue contingencies:

  • Creditworthy customer: If a customer is considered not creditworthy, Receivables assigns a payment-based revenue contingency to the transaction and only recognizes revenue to the extent of payments received.

  • Refund policy: If the transaction is associated with a contract that offers a refund period that exceeds the refund policy, Receivables assigns a time-based revenue contingency to the transaction and only recognizes revenue after the refund policy period expires.

  • Payment terms: If the transaction has payment terms that exceed the payment terms policy, Receivables assigns a payment-based revenue contingency to the transaction and only recognizes revenue to the extent of payments received.

If a transaction has a deferred revenue scheduling rule, then all revenue is assigned to the unearned revenue account. You recognize revenue manually for these transactions at the appropriate time, according to the revenue policy of your enterprise.

For transactions assigned time-based revenue contingencies, you can recognize revenue manually if the contingency is met in advance of the specified time period, for example, a customer provides early acceptance of the terms of a post-billing customer acceptance clause.

It may also happen that Receivables can't automatically record certain contingencies, such as the completion of a particular service. In these cases you need to manually schedule revenue recognition.

Note: Once you manually adjust revenue, Receivables discontinues the automatic monitoring of contingencies on the related transactions.

You can expire a revenue contingency at any time, according to the circumstances surrounding the contingency and the related transaction.

For example, you may need to expire one contingency on a transaction line and assign a new contingency to the same transaction line. In other cases, a contingency may be assigned in error to a transaction.

You can expire a time-based contingency if the terms of the contingency are met in advance of the specified time period, such as a change in time-period for a funding clause or acceptance clause.

Process Revenue Adjustments for Receivables

You must ensure that you enable certain settings in order to recognize revenue properly on your transactions.

These settings influence revenue recognition on your transactions:

  • Enable Salesperson System Options

  • Define Lookups for Revenue Recognition

  • AutoAccounting based on Standard Line

Enable Salesperson System Options

You must enable the Require salesperson Receivables system option for revenue accounting. Revenue accounting requires that you assign sales credits to all transactions that can be adjusted for either revenue or sales credits. If you don't normally track sales credits, and you want to use revenue accounting for revenue adjustments only, use the default salesperson value of No Sales Credit.

Optionally enter a value in the Sales Credit Percent Limit field on Receivables system options to limit the percentage of revenue plus non-revenue sales credit that a salesperson can have on any transaction line. If you don't enter a value for this system option, then no sales credit limit validation is performed during revenue accounting.

Define Lookups for Revenue Recognition

Define these lookups for revenue recognition, according to your requirements:

  • Use the Revenue Adjustment Reason lookup type to define reasons specific to your enterprise for making revenue adjustments.

  • You can assign payment-based revenue contingencies to the transaction lines of transactions that use the In Arrears invoicing rule. This lets you recognize revenue after you receive payment, instead of recognizing revenue according to the revenue recognition schedule. Use the AR_FEATURES lookup type to define the AR_CONT_INV_INARREARS_RULE lookup to enable this feature.

AutoAccounting based on Standard Line

If AutoAccounting is set to derive accounting segments based on standard line, the transaction line must be either an inventory item or a standard memo line. Otherwise, AutoAccounting can't derive a valid account code combination for revenue recognition.

You can modify invoice lines that have deferred revenue or revenue contingencies.

You can make these modifications:

  • Adjust revenue

  • Adjust invoices

  • Modify distributions and sales credits

  • Credit invoices

  • Reverse receipts

Each activity has a different effect on active revenue contingencies.

Note: You can't set an invoice with active revenue contingencies to Incomplete.

Adjust Revenue

When you move revenue on an invoice line from an unearned to an earned revenue account, or vice versa, this action removes the invoice line revenue contingencies. The invoice is no longer subject to automatic revenue recognition.

This does not apply to adjustments to sales credits, because you can only adjust sales credits on revenue that has already been scheduled.

Adjust Invoices

You can manually adjust an invoice with revenue contingencies. However, if the GL Account Source for the specified adjustment activity is Revenue on Invoice, then Receivables removes the contingency from the invoice after making the adjustment. This is because AutoAccounting derives the anticipated revenue accounting distribution accounts and amounts, thereby overriding the event-based revenue management process.

If you want Receivables to continue monitoring an invoice for automatic revenue recognition, then always use a credit memo to adjust an invoice with contingencies.

Modify Distributions and Sales Credits

You can manually change the accounting distributions and sales credits on an invoice with contingencies.

Receivables removes the contingencies from the invoice for these types of changes:

  • For distributions, you change an existing accounting distribution to a revenue or any other account.

  • For sales credits, you rerun AutoAccounting when you modify sales credits.

Credit Invoices

If you issue a credit memo against an invoice that had revenue automatically deferred upon import, then the impact of the credit memo on the invoice differs depending on the original reason for the revenue deferral. This applies only if you set the Invoice Accounting Used for Credit Memos profile option to Yes.

For example, you apply a credit memo against an invoice that had revenue deferred due to one or more contingencies, but some of the revenue was partially recognized. A portion of the invoice revenue, therefore, is still in an unearned revenue account. Different procedures apply depending on whether the contingencies are payment-based or time-based:

  • Payment-based contingencies: If revenue on this invoice was deferred due to unmet payment-based contingencies, then Receivables always debits the unearned revenue account for the full amount of the credit memo, according to the initially assigned revenue scheduling rules.

    Caution: This is a departure from standard functionality. When you credit an invoice that is not under evaluation for event-based revenue management, Receivables prorates the amount of the credit memo between the earned and unearned revenue invoice amounts.

    If the amount of the credit memo exceeds the amount of the unearned revenue on the invoice, and the credit memo transaction type allows overapplication, then Receivables records the excess amount as a debit to the unearned revenue account. You can optionally clear the negative unearned revenue on this invoice.

  • Time-based contingencies: If revenue on this invoice was deferred due to unexpired time-based contingencies, then Receivables always prorates the credit memo amount between the earned and unearned revenue amounts on the invoice. If a multi-period revenue scheduling rule exists on an invoice, then Receivables further prorates the credit memo amount across future periods.

If you apply a credit memo against an invoice with revenue that was already manually adjusted, then Receivables follows standard credit memo functionality. Receivables prorates the credit memo amount between the earned and unearned revenue amounts on the invoice, even if the invoice was initially analyzed for collectibility and acceptance. In this case, you must confirm that the earned and unearned revenue on the invoice is stated appropriately for each period. If necessary, use the Manage Revenue Adjustments pages to make any further adjustments.

Reverse Receipts

If you apply a receipt to an invoice with revenue contingencies, and you later reverse the receipt, the impact of the receipt reversal differs depending on the original reason for the revenue deferral.

Different procedures apply depending on whether the contingencies are payment-based or time-based:

  • Payment-based contingencies: If you apply a receipt to an invoice with a payment-based contingency, Receivables initiates revenue recognition for the applied amount. If you later reverse the receipt, Receivables automatically unearns the previously earned revenue.

  • Time-based contingencies: If you apply a receipt against an invoice line with an unexpired time-based contingency, Receivables leaves the receipt amount as unearned revenue, but marks the amount as pending revenue recognition when the contingency expires. If you later reverse the receipt, then Receivables reflects the receipt reversal by simply removing the pending status from the receipt amount.

    If revenue on an invoice was deferred due to unexpired time-based contingencies only, then the reversal of a receipt does not impact the amount and timing of revenue recognition. For example, if all lines of an invoice are associated with a nonstandard refund policy (90 days), Receivables recognizes revenue only upon the expiration of the 90-day period. Applying and later reversing a receipt against this invoice has no impact on the timing and amount of revenue recognition.

If you transfer sales credits for all salespersons to a new salesperson using the Entire Revenue Amount option, this action transfers 100% of sales credits from all salespersons on the specified lines to the new salesperson.

If you transfer sales credits for all salespersons to a new salesperson using the Schedule Percentage of Total Amount of Selected Lines option, this action transfers only the specified percentage, prorated across the original salespersons based on their current sales credits.

Example of Transferring Sales Credits

Three salespersons are assigned to a transaction line with a revenue split of 20:30:50. If you transfer all adjustable revenue to a new salesperson, the new salesperson receives 100% (20 + 30 + 50).

If you transfer only 5%, the new salesperson receives 5% of the line total and the transferred amount is prorated among the three salespersons.

This table illustrates the transfer of sales credits:

Salesperson Revenue Split Transfer Percentage Prorated Transfer Percentage

Salesperson 1

20

5%

.05 * 20 = 1

Salesperson 2

30

5%

.05 * 30 = 1.5

Salesperson 3

50

5%

.05 * 50 = 2.5

In order to transfer sales credits, you must set up AutoAccounting to derive at least one segment of the revenue account from salesperson. If no revenue account segment is derived from salesperson, the transfer of revenue sales credits does not have an accounting impact. If there are no sales credits on the transaction, then you cannot add non-revenue sales credits.

If you update sales credits on the Edit Transaction page, do not rerun AutoAccounting if all of these factors apply:

  • AutoAccounting is based on salesperson.

  • Update of Existing Sales Credits Allowed profile option is set to Yes.

  • You previously adjusted revenue on the transaction using the Manage Revenue Adjustments pages.

Note: To safely update sales credits on transactions that have had revenue adjustments, you should always use the Manage Revenue Adjustments pages.

If multiple contingencies exist on multiple invoice lines, then revenue recognition can occur at different times for different lines on the invoice. If multiple contingencies exist on a single invoice line, then revenue recognition for that line occurs only after the latest contingency expires.

Settings That Affect Invoices with Multiple Contingencies

A single invoice or invoice line can contain both payment-based contingencies and time-based contingencies:

  • Payment-based contingencies: Receivables recognizes revenue on the invoice line or portion of the invoice line when payment is received.

  • Time-based contingencies: Receivables recognizes revenue only when the contingency expires.

If no unexpired contingencies remain on the invoice line, Receivables initiates revenue recognition according to the initially assigned revenue scheduling rule. If other unexpired contingencies remain on the invoice line, Receivables doesn't initiate revenue recognition for the invoice line.

How Multiple Contingencies Are Calculated

Multiple contingencies are calculated differently for each of these circumstances:

  • Two time-based contingencies on the same invoice.

  • Two time-based contingencies on the same invoice line.

  • Payment-based and time-based contingencies on the same invoice.

Two time-based contingencies on the same invoice

You enter a customer invoice with 6 lines. Lines 2 and 3 are associated with a fiscal funding clause (60 days) and Line 5 is associated with a cancellation provision (90 days). Revenue for Lines 1, 4, and 6 are fully recognized, either immediately or according to the existing revenue scheduling rules.

After 60 days, the fiscal funding clause on Lines 2 and 3 expires. Receivables initiates revenue recognition in full for Lines 2 and 3.

After another 30 days, the cancellation provision on Line 5 expires. Receivables initiates revenue recognition in full for Line 5.

Two time-based contingencies on the same invoice line

You enter or import an invoice for a creditworthy customer, and one of the invoice lines is associated with both a nonstandard refund policy (50 days) and an acceptance clause (120 days).

Receivables doesn't recognize revenue on this invoice line until the acceptance clause expires after 120 days. If, for example, you obtain written acceptance from the customer after 80 days, you can record early acceptance to allow revenue recognition.

Note: The accounting date when you enter early acceptance becomes the revenue recognition date for this invoice line.

Payment-based and time-based contingencies on the same invoice

You import a customer invoice with 2 lines. Line 1 is $150 and Line 2 is $1,000. Line 2 is associated with an acceptance clause (60 days) and a cancellation provision (150 days). In addition, the customer has been granted extended payment terms on this invoice. Due to the existing contingencies, Receivables can't recognize revenue for either line on this invoice.

After 45 days, you apply a $500 receipt against the invoice. Because it is a partial payment, Receivables prorates this payment across the two invoice lines, based on the weighted average formula:

  • Receivables recognizes revenue for Line 1 in the amount of $65.21.

  • Receivables can't recognize revenue for Line 2 because of the acceptance clause and cancellation provision. Receivables instead assigns $434.79 for Line 2 as an amount that is pending revenue recognition.

After 60 days, the acceptance clause on Line 2 expires. However, Receivables can't recognize the $434.79 that is still pending because of the cancellation provision.

After 75 days, you apply a $650 receipt against the invoice:

  • Receivables recognizes the remaining $84.79 in revenue for Line 1.

  • Receivables still can't recognize revenue for Line 2 because of the acceptance clause and cancellation provision. Receivables assigns another $565.21 for Line 2 as an amount that is pending revenue recognition. The total amount for Line 2 that is pending revenue recognition is now $1,000.

After 150 days, the acceptance clause on Line 2 expires, and Receivables recognizes the entire $1,000 in revenue for Line 2.

These examples illustrate the impact of receipt applications on transactions with deferred revenue or revenue contingencies.

Payment in Full

You import invoice 2002 for $600, and Receivables defers all revenue because the customer is not creditworthy. You later apply a payment of $600 against this invoice.

Since payment in full was received and applied against the invoice, Receivables recognizes the revenue by debiting $600 from the unearned revenue account and crediting $600 to an earned revenue account, according to the initially assigned revenue scheduling rule.

Note: Revenue that is recognized based on receipt application can never exceed the original amount due on the invoice line, less any applicable credit memos. If there is an overpayment, Receivables doesn't recognize the overpayment as revenue, even if the transaction allows overapplication.

Partial Receipt Application

You import a $350 invoice with three invoice lines. Receivables defers all revenue because the customer wasn't creditworthy.

You then apply a receipt for $100 against this invoice. Because the customer is not creditworthy, Receivables can recognize revenue only to the extent of the applied receipt. Because this is a partial receipt, Receivables must calculate how much revenue to attribute to each invoice line.

When applying a partial receipt, Receivables uses a weighted average formula to calculate the revenue amounts to recognize for each line. Receivables calculates the revenue for each line as follows:

  • Line 1 = $50

    ($50/$350) * $100 = $14.28571

    Receivables rounds this amount down to $14.28.

  • Line 2 = $100

    ((($100+$50)/$350) * $100) - $14.28 = $28.5771

    Receivables rounds this amount down to $28.57.

  • Line 3 = $200

    ((($200+$100+$50)/$350) * $100) - ($14.28 + $28.57) = $57.15

    Receivables rounds the last amount up to account for the rounding of the previous lines.

Any future receipts applied against this invoice are calculated for revenue for each line in the same way.

Partial Receipt Application with Multiple Contingencies

You apply a payment for $400 against invoice 3003. This invoice has 5 lines: Line 1 is $200, Line 2 is $450, Line 3 is $100, Line 4 is $700, and Line 5 is $550.

Receivables reviews the original invoice 3003, and determines that revenue was deferred because:

  • Invoice 3003 was assigned extended payment terms.

  • Line 3 is associated with a non-standard refund policy contingency.

  • Line 5 is associated with a cancellation provision contingency.

Since the $400 receipt is a partial payment, Receivables prorates this payment across the invoice lines, based on the weighted average formula. However, for simplicity, assume that Receivables applies $80 to each invoice line:

  • Receivables recognizes revenue for Lines 1, 2, and 4 in the amount of $80 each.

  • Receivables can't recognize revenue for Lines 3 and 5 due to the unexpired time-based contingencies. Receivables therefore marks the $80 payments for Lines 3 and 5 as amounts that are pending revenue recognition at a later date.

When the contingencies later expire, Receivables recognizes revenue for Lines 3 and 5 in the amount of $80 each. Any future receipts applied against this invoice are analyzed in the same way.

Ineligible Transactions

You apply a payment for $200 against invoice 1001. After reviewing the original invoice 1001, Receivables determines that this transaction was never eligible for automatic revenue recognition. This could be for one of several reasons:

  • The invoice wasn't created manually or imported using AutoInvoice.

  • A deferred revenue scheduling rule is assigned to the invoice.

  • Event-based revenue management was never activated for the invoice. Either there is no default revenue policy, or contingencies didn't exist on the invoice during import.

In this case, Receivables doesn't proceed with further analysis of this receipt. Applying a payment to invoice 1001 won't trigger revenue recognition.

These examples illustrate the accounting for partial credit memos against an invoice with revenue contingencies.

The details of the invoice setup are:

  • An invoice is imported for $750.

  • The invoice has 3 lines:

    • Line 1 is $200

    • Line 2 is $450

    • Line 3 is $100

  • The invoice has 2 revenue contingencies:

    • Line 1 is associated with a nonstandard 90-day refund policy.

    • Line 3 is associated with a 120-day cancellation provision.

  • Invoice Accounting Used for Credit Memos profile option = Yes.

  • Customer has extended payment terms.

First Transaction

This table shows the initial accounting entry:

Account Debit Credit

Accounts Receivable

750.00

None

Unearned Revenue

None

750.00

Second Transaction

You apply a $300 receipt against the invoice, 45 days after the invoice date.

Based on the weighted average formula, Receivables applies:

  • $80 to Line 1.

  • $180 to Line 2.

  • $40 to Line 3.

The result of these applications is as follows:

  • Receivables can't recognize revenue for Line 1 or Line 3 due to the related contingencies. Receivables records payments to Line 1 and Line 3 as amounts that are pending revenue recognition at a later date.

  • Receivables can only recognize revenue for Line 2.

This table describes the accounting entry:

Account Debit Credit

Cash

300.00

None

Accounts Receivable

None

300.00

Unearned Revenue

180.00

None

Earned Revenue

None

180.00

The total amount due on this invoice is now $450. The unearned revenue amount on this invoice is $570.

Third Transaction

You apply a credit memo for $200 against this invoice.

Because this invoice has a combination of payment-based and time-based contingencies, the balance of the credit memo is not prorated between the unearned revenue and revenue accounts. Instead, Receivables credits the receivables account and debits the unearned revenue account for the full amount of the credit memo.

This table describes the accounting entry:

Account Debit Credit

Unearned Revenue

200.00

None

Accounts Receivable

None

200.00

The total amount due on this invoice is now $250. The unearned revenue amount on this invoice is $370.

Fourth Transaction

After 90 days pass, the refund policy expires. Receivables initiates revenue recognition for the amount of the receipt that you previously applied to Line 1.

This table describes the accounting entry:

Account Debit Credit

Unearned Revenue

80.00

None

Accounts Receivable

None

80.00

The total amount due on this invoice is still $250. However, the unearned revenue amount on this invoice is $290.

Fifth Transaction

You apply a credit memo for $150 against this invoice.

Because the invoice still has a combination of payment-based and time-based contingencies against it, Receivables credits the receivables account and debits the unearned revenue account for the full amount of the credit memo.

This table describes the accounting entry:

Account Debit Credit

Unearned Revenue

150.00

None

Accounts Receivable

None

150.00

The total amount due on this invoice is now $100. The unearned revenue amount on this invoice is $140.

Sixth Transaction

After 120 days pass, the cancellation policy expires. Receivables initiates revenue recognition for the amount of the receipt that you previously applied to Line 3.

This table describes the accounting entry:

Account Debit Credit

Unearned Revenue

40.00

None

Earned Revenue

None

40.00

The total amount due on this invoice is still $100. The unearned revenue amount on this invoice is $100.

Seventh Transaction

You apply a $100 receipt against the invoice.

Based on the weighted average formula, Receivables applies:

  • $27 to Line 1.

  • $60 to Line 2.

  • $13 to Line 3.

At this point, all time-based contingencies have expired.

This table describes the accounting entry:

Account Debit Credit

Cash

100.00

None

Accounts Receivable

None

100.00

Unearned Revenue

100.00

None

Earned Revenue

None

100.00

The invoice is now fully paid and no unearned revenue remains.

FAQs for Process Revenue Adjustments for Receivables

Revenue is scheduled when Receivables creates, for a transaction line, the revenue distribution records for all accounting periods as specified by the revenue scheduling rule assigned to each line. Scheduled revenue doesn't mean that the revenue amounts are already earned. It means only that Receivables has created the distribution records for these amounts.

Revenue that is unscheduled is deferred to an unearned revenue account. Revenue remains unscheduled either until you manually schedule the revenue or an event triggers the automatic recognition of previously deferred revenue, for example, the customer makes a payment.

If you change the accounting date, this becomes the new start date for revenue recognition, in place of the revenue start date on the transaction line.

You can change the accounting date provided either of these factors is true:

  • There is no revenue scheduling rule on the transaction line.

  • If there is a revenue scheduling rule, it is for a single period only.

If a revenue scheduling rule with more than one period exists, Receivables uses the original start date and revenue recognition schedule on the transaction.

Revenue sales credits refer to the percentage of revenue generated from the sale recorded on a transaction or transaction line that is allotted to each salesperson.

Non-revenue sales credits refer to additional revenue above the transaction or transaction line amount allotted to a salesperson that is unrelated to the sale itself, for example, a sales bonus.

Yes, you can update sales credits on the transaction or transaction line before posting to the general ledger.

The primary salesperson is assigned when you first enter the transaction. You only need to enter or update sales credit information on the transaction in these cases:

  • Assign sales credits to more than one salesperson.

  • Distribute credit across transaction lines.

After you post to general ledger, you must use the Manage Revenue Adjustments pages to update sales credits.

Note: For rule-based transactions, you can't use the Create and Edit Transaction pages to update sales credits or modify salespersons after running revenue recognition, even if the transaction is incomplete. You must use the Manage Revenue Adjustments pages.