Example of Prospective Accounting for Immaterial Price Changes
This example shows a customer contract with three services. One of the services undergoes a price change, which triggers prospective accounting.
First, populate the Source Document Lines tab in the Revenue Basis Data Import file-based data import (FBDI) template with the revenue basis data.
This table shows the attribute values you enter for each of your three services:
| Item Number | Quantity | Unit Selling Price | Service Duration | Price Periodicity | Line Amount | Plan Start Date | Plan End Date | Version Line | Version Number |
|---|---|---|---|---|---|---|---|---|---|
| Service A | 5 | 225.00 | 6 | Month | 6750.00 | 01-Jan-23 | 30-Jun-23 | N | 1 |
| Service B | 5 | 50.00 | 3 | Month | 750.00 | 01-Jan-23 | 31-Mar-23 | N | 1 |
| Service C | 5 | 100.00 | 12 | Month | 6000.00 | 01-Jan-23 | 31-Dec-23 | N | 1 |
After importing the data in the FBDI template into Revenue Management and running the Identify Customer Contracts process, the process creates a customer contract with three performance obligations, which correspond to the three services:
- Performance obligation 1: Service A
- Performance obligation 2: Service B
- Performance obligation 3: Service C
This table shows the values populated in the contract for each performance obligation on the Promised Details tab in the Edit Customer Contract page:
| Item | Quantity | Entered Unit Selling Price | Service Duration | Price Periodicity | Selling Amount | Unit SSP | Extended SSP | Promised Detail Amount | Plan Start Date | Plan End Date |
|---|---|---|---|---|---|---|---|---|---|---|
| Service A | 5 | 225.00 | 6 | Month | 6750.00 | 375.00 | 11250.00 | 8265.31 | 1-Jan-23 | 30-Jun-23 |
| Service B | 5 | 50.00 | 3 | Month | 750.00 | 75.00 | 1125.00 | 826.53 | 1-Jan-23 | 31-Mar-23 |
| Service C | 5 | 100.00 | 12 | Month | 6000.00 | 100.00 | 6000.00 | 4408.16 | 1-Jan-23 | 31-Dec-23 |
| Total | NA | NA | NA | NA | 13500.00 | NA | 18375.00 | 13500.00 | NA | NA |
At the beginning of March 2023, service 3 undergoes a price change where the unit selling price is revised to 105 USD. In this case, you must split the revenue line into two lines:
- Revise the existing revenue line with a new plan end date of 28-Feb-2023, a new service duration of 2 months, and a new line amount.
- Populate the version line with the attributes that trigger prospective accounting.
- Send a new line with the new unit selling price for the rest of the plan period from March 2023 to December 2023. This new line must also be populated with the attributes that trigger prospective accounting.
Upon further processing, the application adds this new line as a new performance obligation to the existing contract.
This table shows the attribute values you enter in the Revenue Basis Data Import template after the revision:
| Item Number | Unit Selling Price | Service Duration | Line Amount | Plan Start Date | Plan End Date | Version Number | Immaterial Change Type | Add to Contract | Action Code | Contract Revision Date |
|---|---|---|---|---|---|---|---|---|---|---|
| Service A | 225.00 | 6 | 6750.00 | 1-Jan-23 | 30-Jun-23 | 1 | NA | NA | NA | NA |
| Service B | 50.00 | 3 | 750.00 | 1-Jan-23 | 31-Mar-23 | 1 | NA | NA | NA | NA |
| Service C | 100.00 | 2 | 1000.00 | 1-Jan-23 | 28-Feb-23 | 2 | Immaterial | NA | NA | 1-Mar-23 |
| Service C | 100.05 | 10 | 5250.00 | 1-Mar-23 | 31-Dec-23 | 1 | Immaterial | Y | Create New PO | 1-Mar-23 |
When the immaterial price changes are imported into Revenue Management, the Identify Customer Contracts process calculates the revenue that's recognized on all performance obligations until the day before the contract revision date. This recognized revenue is reduced from the new transaction price.
In this example, 01-Mar-2023 is the contract revision date. This table shows the revenue recognized a day before the contract revision date (through 28-Feb-2023):
| Performance Obligation | January-23 | February-23 | Performance Obligation Total |
|---|---|---|---|
| 1 | 1377.55 | 1377.55 | 2755.10 |
| 2 | 275.51 | 275.51 | 551.02 |
| 3 | 367.35 | 367.35 | 734.69 |
| Total | 2020.41 | 2020.41 | 4040.82 |
This table shows the values that are populated in the Promised Details tab in the Edit Customer Contract page after you process the price changes using prospective accounting:
| Obligation | Item Number | Quantity | Entered Unit Selling Price | Service Duration | Price Periodicity | Selling Amount | Unit SSP | Extended SSP | Plan Start Date | Plan End Date |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Service A | 5 | 225.00 | 6 | Month | 6750.00 | 375.00 | 11250.00 | 01-Jan-23 | 30-Jun-23 |
| 2 | Service B | 5 | 50.00 | 3 | Month | 750.00 | 75.00 | 1125.00 | 01-Jan-23 | 31-Mar-23 |
| 3 | Service C | 5 | 100.00 | 2 | Month | 1000.00 | 100.00 | 1000.00 | 01-Jan-23 | 28-Feb-23 |
| 4 | Service C | 5 | 105.00 | 10 | Month | 5250.00 | 100.00 | 5000.00 | 01-Mar-23 | 31-Dec-23 |
| Total | NA | NA | NA | NA | NA | 13750.00 | NA | 18375.00 | NA | NA |
This table shows the revenue recognized and the allocated amounts:
| Performance Obligation | Revenue Recognized | Revenue to be Recognized | New Allocated Amount | Total Allocated Amount |
|---|---|---|---|---|
| 1 | 2755.10 | NA | 5655.84 | 8410.94 |
| 2 | 551.02 | NA | 282.79 | 833.81 |
| 3 | 734.69 | NA | 0.00 | 734.69 |
| 4 | NA | NA | 3770.56 | 3770.56 |
| Total | 4040.82 | 9709.18 | 9709.18 | 13750.00 |