Line Level Deferred Revenue Reclassification
The functions discussed in this topic require the Revenue Commitments feature to be enabled.
Deferred revenue reclassification for revenue commitments is calculated at the line item level, not at the order level. Line level deferred revenue reclassification uses item-specific revenue and deferred revenue accounts to post deferred revenue amounts per transaction line.
In addition, the foreign currency gain/loss adjustment is calculated based on the billing and revenue recognition rates on individual lines, and then posts to the revenue and deferred revenue accounts associated with the items. Item-specific revenue and deferred revenue account balances are adjusted for foreign currency gain/loss instead of posting currency adjustments to order level accounts.
The unbilled receivable adjustment is calculated at the order level by comparing the total billed amount in base currency, to the total revenue recognized amount in base currency. If the sales contract is denominated by a foreign currency, the unbilled receivable adjustment is denominated in the same foreign currency which enables the foreign currency revaluation of open unbilled receivable balances.
The Deferred Revenue Reclassification and Deferred Revenue Reclassification Activity reports provide detailed information about how deferred revenue reclassification amounts are calculated. For information about these reports, see Deferred Revenue Reclassification Report and Deferred Revenue Reclassification Activity Report.
Line level deferred revenue reclassification is not enabled by default for accounts using the Revenue Commitments feature before Version 2013 Release 2. To use line level deferred revenue reclassification for accounts that enabled the Revenue Commitments feature prior to Version 2013 Release 2, contact Support. See Adopting Line Level Deferred Revenue Reclassification.
The following diagram illustrates the Deferred Revenue Reclassification process:
When you run Deferred Revenue Reclassification, the process automatically performs these steps:
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Billing Amount Allocation – For orders with bundled items (multi-element sales contracts), the revenue amount allocated for each line item on the order may be different than its billing or sales amount. To properly calculate the impact on deferred revenue and unbilled receivables, the billing amount allocation step redistributes the gross billing amount across the individual line items based on the revenue allocation ratio for the lines. It determines how much of the gross billing amount to allocate to the individual deferred revenue accounts for each line. Line items with billing amounts that exceed revenue recognition amounts ‘give up’ the excess billing amount to be allocated to lines where recognition exceeds billing. This allocation step is also referred to as ‘carve in/carve out’.
For orders without bundled sales items, the billing allocation does not occur. The revenue allocation amount is the same as the billing allocation amount for each line on the order
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Line Level Foreign Currency Adjustment – The foreign currency gain/loss amount is calculated based on the billing and revenue recognition rates for each line and summed up to an order level foreign currency gain/loss balance. The gain/loss adjustment posts an adjustment to the revenue and deferred revenue accounts associated with each line.
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Order Level Unbilled Receivable Adjustment – The unbilled receivable adjustment is calculated at the order level by comparing the accumulated base currency billing amount to the accumulated base currency revenue recognition amount. If the sales order is denominated by a foreign currency, the unbilled receivables adjustment amount is then converted to foreign currency using the daily rate in effect at the time the first adjustment is calculated. This rate is used to convert any subsequent unbilled receivable adjustments to transaction currency for the life of the order and its revenue recognition. Converting the unbilled receivable adjustment amount to foreign currency makes open unbilled receivable balance eligible for foreign currency revaluation at month end.
For information about running deferred revenue reclassification, see Reclassifying Deferred Revenue for Revenue Commitments.
For detailed examples of how the adjustments to deferred revenue, unbilled receivables, and foreign currency gain/loss are calculated, see Revenue Commitment Examples.