Difference Between Element Level and Arrangement Level Grouping
The accounting preference Unbilled Receivable Adjustment Journal Grouping controls whether the unbilled receivable adjustment is element level, arrangement level, or sub-arrangement group level. When Multi-Book Accounting is enabled, the preference is book specific. Then it appears in the header of the accounting book records.
When you select the element level option, the unbilled receivable adjustment is calculated for each revenue element in the arrangement separately.
When you select the arrangement level option, the unbilled receivable adjustment is calculated for the revenue arrangement as a whole. A net amount ratio determines the portion of the contract asset to apply to each revenue element’s deferred revenue account. The process creates an adjustment at the end when required to present remaining obligations as either assets or liabilities in accordance with ASC 606-10-45-1. For details, see Net Amount Ratio and Net Contract Asset or Liability per Element.
The following example shows the difference between element level and arrangement level unbilled receivable adjustments.
Example Scenario
The accounts receivable specialist creates a sales order with four different items, each with their own income and deferred revenue accounts. The revenue arrangement generated from the sales order has four revenue elements. The discounted sales amount for all elements is the same as the revenue amount. The transaction currency is the same as the base currency. No allocation or foreign currency adjustments are required. The sales order is partially billed.
The following table shows key amounts for the end of the first period after revenue recognition journal entries are created. The designated income and deferred revenue accounts are also provided.
|
Item |
Total Revenue |
Recognized |
Billed |
Income Account |
Deferral Account |
|---|---|---|---|---|---|
|
1 |
60 |
10 |
12 |
Income 1 |
Deferred Revenue 1 |
|
2 |
120 |
20 |
10 |
Income 2 |
Deferred Revenue 2 |
|
3 |
90 |
15 |
38 |
Income 3 |
Deferred Revenue 3 |
|
4 |
150 |
25 |
25 |
Income 4 |
Deferred Revenue 4 |
|
Total |
420 |
70 |
85 |
|
|
For purposes of this example, the same account is used for all items for accounts receivable. Before reclassification, the account balances from the trial balance are as follows:
|
Account |
Debit |
Credit |
|---|---|---|
|
Accounts Receivable |
85 |
|
|
Income 1 |
|
10 |
|
Income 2 |
|
20 |
|
Income 3 |
|
15 |
|
Income 4 |
|
25 |
|
Deferred Revenue 1 |
|
2 |
|
Deferred Revenue 2 |
10 |
|
|
Deferred Revenue 3 |
|
23 |
|
Deferred Revenue 4 |
0 |
|
Reclassification Process
For the element level grouping, the process creates an unbilled receivable adjustment for the element for item 2 as shown in the following table. Item 2 is the only element whose Billed amount (10) is less than its Recognized amount (20).
|
Account |
Debit |
Credit |
Memo |
|---|---|---|---|
|
Unbilled Receivable |
10.00 |
|
Unbilled Receivable Adjustment Debit for Revenue Arrangement #, Element: # Total Billed After Carve (Base Currency): 10.00 Total Recognized After FX Adjustment (Base Currency): 20.00 |
|
Deferred Revenue 2 |
|
10.00 |
Unbilled Receivable Adjustment Credit for Revenue Arrangement #, Element: # Total Billed After Carve (Base Currency): 10.00 Total Recognized After FX Adjustment (Base Currency): 20.00 |
For arrangement level grouping, the process does not create an unbilled receivable adjustment because the Billed amount (85) is greater than the Recognized amount (70). The process does create Net Contract Asset or Liability per Element adjustment to present remaining obligations as net liabilities in accordance with ASC 606-10-45-1. This netting adjustment is shown in the following table.
|
Account |
Debit |
Credit |
Memo |
|---|---|---|---|
|
Deferred Revenue 1 |
0.80 |
|
Net Contract Asset or Liability per Element Debit for Revenue Arrangement #, Element # |
|
Deferred Revenue 2 |
|
10.00 |
Net Contract Asset or Liability per Element Debit for Revenue Arrangement #, Element # |
|
Deferred Revenue 3 |
9.20 |
|
Net Contract Asset or Liability per Element Debit for Revenue Arrangement #, Element # |
The account balances from the trial balance after reclassification by the two methods are shown in the following table. The income and accounts receivable account are not affected and are not included.
|
Account |
Balance After Element Level |
Balance After Arrangement Level |
||
|---|---|---|---|---|
|
|
Debit |
Credit |
Debit |
Credit |
|
Unbilled Receivable |
10.00 |
|
0 |
|
|
Deferred Revenue 1 |
|
2.00 |
|
1.20 |
|
Deferred Revenue 2 |
0 |
0 |
||
|
Deferred Revenue 3 |
|
23.00 |
|
13.80 |
|
Deferred Revenue 4 |
0 |
0 |
||