Examples of Revenue Recognition after Receipt Application

Payment in Full

You import invoice 2002 for $600, and Receivables defers all revenue because the customer isn't 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 recognized based on receipt application can never exceed the original amount due on the invoice line, less any applicable credit memos. If an overpayment exists, 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 isn't 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 no default revenue policy exists, 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.