Contract-Based Revenue Recognition, Definition:
- Revenue Accounting Integration with Sales, Fulfillment and Multiple Billing Systems.
- Revenue Recognition Compliance with IFRS by Multi-Element Arrangements.
- Revenue Contract and Performance Obligation Creation.
- Revenue Allocation Calculation Handling.
- Revenue Information for Periodic Status Reporting.
- Revenue Information for Profitability Analysis.
- Revenue Detailed Posting in Subleger.
Contract-Based Revenue Recognition
- Enables the seamless integration of sales contracts, fulfillments and billing from multiple operational systems into revenue accounting.
- Manages contracts with diverse line-items, the so called multi-element arrangements, to comply with IFRS and US GAAP for revenue recognition.
- Creates revenue contracts and performance obligations.
- Handles revenue allocation calculation.
- Provides detailed revenue information for periodic status reporting.
- Provides detailed revenue information for Profitability Analysis with compliant postings.
- Posts detailed revenue in sub ledger before aggregated transfer to the general ledger.
Contract-Based Revenue Recognition can be described by some business examples:
- The customer pays a monthly recurring fee per user in advance. For revenue accounting the amount should be assigned time-based to the appropriate month in the future.
- The customer creates and pays for usage-based support tickets. For revenue accounting, this transaction is assigned event-based to a revenue contract.
Contract-Based Revenue Recognition Processing Steps are:
- Contract Identification
- Performance Obligation Identification
- Transaction Price Allocation
- Performance Obligation Fulfillment
- Revenue Posting
Contract-Based Revenue Recognition is processed with the following steps:
- The Contract Identification creates revenue recognition contracts corresponding to operational documents that are created on an operational system.
- The Performance Obligation Identification identifies the performance obligations included in each contract. Performance obligations for items in the operational document are created and their relationships is managed.
- The Transaction Price Allocation determines total prices by aggregating pricing conditions passed from operational systems, and allocates the total price among the performance obligations.
- The Performance Obligation Fulfillment recognizes revenue for performance obligations as they are fulfilled.
- The Revenue Posting are transferred to the general ledger regularly to reflect revenue-related transactions.
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