Accounting in Revenue Management

The basic accounting document in Oracle Revenue Management is a revenue contract. A revenue contract specifies different performance obligations that are committed in the contract.

Revenue Management creates accounting for the various accounting events that occur in the performance obligations.

Revenue Management supports three types of satisfaction measurement models based on which revenue it recognizes and which accounting it creates:

• Period Based: For example, if the contract is an annual subscription service, the obligation is to provide the service for 12 months. The application recognizes revenue from this service every month. The last day of the month is specified as the accounting date.
• Quantity Based: For example, if the contract states that 10 laptops will be delivered to the customer, the obligation is to deliver the 10 laptops. The application generates a satisfaction event whenever the seller delivers a laptop.
• Percentage Based: For example, if the contract is to build a bridge, the obligation is to meet 100 percent of the specifications in the contract. The application recognizes revenue in proportion to the percentage of completion of the bridge.

Initial Performance Event

The application creates an initial performance event to indicate that some activity occurred in the company against the contract. For example, either the company begins satisfying the contract or the company receives advance payment for the contract. At this point, the application books the entire amount of the performance obligation against the contract asset and contract liability using an initial performance event. In other words, an initial performance event is always against a performance obligation.

The accounting for an initial performance event looks like this:

Initial Performance Event

Debits	Credits
Contract Asset account
	Contract Liability account

Satisfaction Event

The application moves the amount from the Contract Liability account to the Contract Revenue account whenever the performance obligation is fulfilled or satisfied. This means that you can begin booking revenue upon satisfaction of a performance obligation.

The accounting for a satisfaction event looks like this:

Satisfaction Event

Debits	Credits
Contract Liability account
	Contract Revenue account

Billing Event

When your company generates a bill for an obligation, the application creates a billing event. Once the bill is applied to the contract, the amount is moved from the Contract Asset account to the Revenue Clearing account. If the contract includes discounts, the discounts are also accounted for at this stage.

The accounting for a billing event looks like this:

Billing Event

Debits	Credits
Contract Revenue Clearing account
Contract Discount Clearing account
	Contract Asset account

Reversal of Initial Performance Event

The application reverses the initial performance event accounting when the original initial performance event needs to be reversed. This generally occurs when an earlier satisfaction event or billing event is imported into Revenue Management after an initial performance event was created.

For example, if the performance obligation is to deliver 10 laptops and the first satisfaction event (subline) for one laptop is imported on 01-FEB-2020, the application creates an initial performance event with an accounting date of 01-FEB-2020. But at a later point in time, if another satisfaction event or billing event is imported into Revenue Management with a date of 10-JAN-2020, the application reverses the earlier initial performance event and a creates a new initial performance event for 10-JAN-2020.

The accounting for a reversal an initial performance event looks like this:

Reversal of Initial Performance Event

Debits	Credits
Contract Liability account
	Contract Asset account

Reversal of Satisfaction Event

The application reverses the accounting of a satisfaction event when a negative satisfaction is imported into Revenue Management that negates the original satisfaction event.

For example, if the performance obligation is to deliver 10 laptops, and the first satisfaction event (subline) for one laptop is imported on 01-FEB-2020, the application creates a satisfaction event for one laptop with an accounting date of 01-FEB-2020. But at a later point in time, if another satisfaction event is imported with a negative quantity (-1), the application creates a reversal of a satisfaction event to reverse the original satisfaction event.

The accounting for a reversal of a satisfaction event looks like this:

Reversal of Satisfaction Event

Debits	Credits
Contract Revenue account
	Contract Liability account

Reversal of Billing Event

The application reverses the accounting of a billing event when you perform a contract modification due to which the billing events must be reversed and recreated in the application.

The accounting for a reversal of a billing event looks like this:

Reversal of Billing Event

Debits	Credits
Contract Asset account
	Contract Revenue Clearing account
	Contract Discount Clearing account