Groupings for Unbilled Receivable Adjustment Journal Entries
The accounting preference Unbilled Receivable Adjustment Journal Grouping controls whether the unbilled receivable adjustment is element level, arrangement level, or sub-arrangement group level. This preference is book specific. When Multi-Book Accounting is enabled, the preference appears on the accounting book record instead of the Accounting Preferences page.
The grouping options are as follows:
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Element – When you select this option, the unbilled receivable adjustment is calculated for each revenue element. Element level adjustments are posted to the deferred revenue account specified on the revenue element. This option is the default value for the accounting preference.
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Arrangement – When you select this 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. See Net Amount Ratio.
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Sub-Arrangement Group – When you select this option, the unbilled receivable adjustment is calculated for each group of revenue elements in an arrangement. A group is identified by the value of the Unbilled Receivable Group field on the revenue element. If no revenue elements in the arrangement have an unbilled receivable group value, the arrangement is treated as one group. A net amount ratio determines the portion of the group’s contract asset to apply to each revenue element’s deferred revenue account. See Net Amount Ratio.
The group concept is limited to the revenue arrangement. If revenue elements on two different arrangements share the same group ID, they are calculated separately. When you merge revenue arrangements, the unbilled receivable group values on the individual elements are carried to the new arrangement. All revenue elements in the new arrangement that have the same group ID are calculated together.
For an example, see Unbilled Receivable Adjustment Sub-Arrangement Grouping Example.
Accounts may need to be adjusted to present remaining obligations as either net assets or liabilities in accordance with ASC 606-10-45-1. When needed, the reclassification process creates a Net Contract Asset or Liability per Element adjustment for arrangement or sub-arrangement group level adjustments. The reclassification process reverses this netting journal in the next period before creating another if needed. For more information, see Net Contract Asset or Liability per Element.
You can change the value of the Unbilled Receivable Adjustment Journal Grouping from a smaller grouping to a larger one. However, you cannot change from a larger grouping to a smaller one. For example, you can change from Element to Sub-Arrangement Group or to Arrangement, but you cannot change from Arrangement to Sub-Arrangement Group or Element. The Default Deferred Revenue Reclassification Account must be set to enable arrangement level or sub-arrangement group level adjustments.
When you first run reclassification after switching from element level to another option, previous element level adjustments are reversed at the element level. Subsequently, the new unbilled receivable adjustment, if any, is created at the arrangement or sub-arrangement group level.
The line-level memo fields of detailed unbilled receivable adjustments include information to help you identify the sources for the adjustment. For deferred revenue account lines, this information includes the revenue arrangement, revenue element, group value, and net amount ratio, as appropriate, for the grouping. The net amount ratio is displayed to three decimal places.
Net Amount Ratio
The net amount ratio determines the portion of the total contract asset or liability to apply to each revenue element’s deferred revenue account.
The formula for the net amount ratio is element asset (or liability) divided by total element assets (or liabilities) for the arrangement or sub-arrangement group.
The following table shows the calculation of net amount ratios for a revenue arrangement with a net contract asset and mixed element-level assets and liabilities.
|
E |
Cumulative Revenue Recognized |
Effective Cumulative Billing |
Element Asset |
E Liability |
Contract Net Asset/Liability |
Net Amount Ratio |
Element Deferred Revenue |
|---|---|---|---|---|---|---|---|
|
1 |
35.00 |
31.50 |
3.50 |
— |
3.50 |
3.50 ÷ 38.50 = 0.0909091 |
3.18 |
|
2 |
35.00 |
17.50 |
17.50 |
— |
17.50 |
17.50 ÷ 38.50 = 0.4545455 |
15.91 |
|
3 |
35.00 |
38.50 |
— |
3.50 |
–3.50 |
— |
— |
|
4 |
35.00 |
17.50 |
17.50 |
— |
17.50 |
17.50 ÷ 38.50 = 0.4545455 |
15.91 |
|
Total |
140.00 |
105.00 |
38.50 |
3.50 |
35.00 |
1 |
35.00 |