Deferred Revenue Recognition

Most often, insurance company bill policies in installments, but Accounts Receivable (AR) and revenue for the total premium are booked as new business in the beginning of the policy term. Regulations, restrictions, or company policies may require that revenue for the total premium must be initially booked to the general ledger as deferred revenue. As time passes, the deferred revenue is realized as earned revenue. For example, the total premium for six months auto-policy (July 1 to Dec 31) is $1200. When this new business is booked, the revenue of $1200 is initially booked as deferred revenue. However, on July 31, August 31, September 30, October 31, November 30, and December 31, $200 must be transferred from deferred revenue GL to earned revenue GL. In order to manage this process, adjustments are created that transfer amount from deferred revenue GL to earned revenue GL.

A deferred revenue recognition schedule determines when these deferred revenue recognition adjustments must be created and posted. On the recognition date, the deferred revenue recognition adjustment is created to transfer a portion of deferred revenue to earned revenue. The corresponding financial transaction does not impact customer's account balance.

You need to create a deferred revenue recognition template for each distribution code and contract type combination for which you want to create a deferred revenue recognition (when the bill segment and adjustment financial transactions created against the respective contracts are frozen). It is the deferred revenue recognition template which helps the system to determine:

  • Adjustment type using which the adjustment should be created when the deferred revenue is recognized

  • Whether the recognition amount and date in the deferred revenue recognition schedule are editable until recognized

  • Whether the deferred revenue recognition schedule must be generated automatically or manually

  • Whether the deferred revenue must be recognized daily, weekly, or monthly

  • Whether the deferred revenue amount must be prorated when the recognition schedule is set to Monthly

  • Algorithm using which the recognition lines in the deferred revenue recognition schedule should be created

  • Algorithm using which the adjustment must be generated when the deferred revenue is recognized

During the deferred revenue recognition process, a deferred revenue recognition creation goes through various statuses in its lifecycle. For more information about the deferred revenue recognition statuses, see Deferred Revenue Recognition Status Transition.

Note: The lifecycle of a deferred revenue recognition creation is driven by the respective business object using which the deferred revenue recognition is generated. The deferred revenue recognition feature explained in this document is articulated based on the lifecycle and logic defined in the business objects.

For more information on how to setup the deferred revenue recognition process, see Prerequisites.

Related Topics

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Deferred Revenue Recognition Template screen Deferred Revenue Recognition Template (Used for Searching)
Deferred Revenue Recognition Template screen Deferred Revenue Recognition Template (Used for Viewing)
Deferred Revenue Recognition screen Deferred Revenue Recognition (Used for Searching)
Deferred Revenue Recognition screen Deferred Revenue Recognition (Used for Viewing)

Parent Topic: Oracle Revenue Management and Billing Generic Business Processes