Defining Revenue Recognition Obligation Details

For revenue-generating contract projects, if the revenue recognition methods is When Billed or Performance Obligation, you must specify the period and year for revenue recognition. Additionally, when the revenue recognition method is Performance Obligation, you specify revenue recognition percentages against obligations that you define. Revenue allocated to a performance obligation should be recognized when the goods or services are transferred to the customer, which occurs when the customer has control of the asset or use of the service.

You can perform revenue recognition what-if analysis by analyzing different revenue recognition terms, helping in the decision making process to decide on the financial terms of contract projects based on the performance obligation details.

Using the When Billed or Performance Obligation method can help you simulate the US GAAP ASC 606 and IFRS 15 requirements for contract projects.

Before performing this task, complete these tasks:

1. Create a contract project with a revenue recognition method of When Billed or Performance Obligation.
2. Enter project expenses (either directly or by drivers), and then from the Actions menu, select Calculate Expenses.
3. Enter project revenue (either directly or by drivers), and then from the Actions menu, select Calculate Revenues.

To define revenue obligation details for a contract project that has a Revenue Recognition method of When Billed or Performance Obligation:

1. Click Revenue , then Driver-Based , and then Revenue Recognition What If to open the Revenue Recognition dashboard.
2. In Project Details, review the details. You can also change the revenue recognition method.
3. In Revenue Obligation Details, enter obligation details that describe either a milestone or specific terms of the contract that need to be fulfilled based on when you plan to recognize the revenue, and then save your changes:
   • Obligation Details—Enter a description of each obligation for the project. A performance obligation is defined as a promise to transfer a good or service.
   • Revenue Recognition—Enter the % of total revenue for the project that needs to be recognized when each obligation is fulfilled. This step is required only when the Revenue Recognition method is Performance Obligation; it is not required for When Billed.
   • When Period—Select the period in which to recognize the revenue for each obligation.
   • When Year—Select the year in which to recognize the revenue for each obligation.

   When you save the form, based on the % of revenue recognition input, the recognized revenue, unearned revenue, and accrued revenue are calculated per month and year.

4. In Total Project Revenue, review the impact of your changes to unearned, accrued, and recognized revenue in a grid.
5. In Revenue Recognition Trend, review the impact of your changes to the recognized revenue and unearned revenue in a trend line.

Performing Revenue Recognition What-If Analysis

You can perform what-if analysis for revenue recognition using the Revenue Recognition What If dashboard. You can use milestone-based revenue recognition to understand the impact of various contract project scenarios on profit and loss. For example:

• Use the Project Details form to change the revenue recognition method for a project.
• Use the Revenue Obligation Details form to modify the obligations, percentages, and periods for recognizing revenue.

Review the impact of your changes in the Total Project Revenue grid or in the Revenue Recognition Trend graph.

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Learn about defining revenue recognition obligation details and performing what-if analysis.	Overview: Revenue Recognition What If Planning in Enterprise Planning and Budgeting Cloud.