The Revenue Management Engine immediately defers revenue on any invoice line that is associated with a time-based contingency. Receivables uses the Revenue Contingency Analyzer to monitor contingencies until they expire.
Once a contingency expires, the Revenue Contingency Analyzer automatically initiates revenue recognition for the related invoice line(s).
Note: After a contingency period expires, the Revenue Contingency Analyzer does not initiate revenue recognition if other contingencies still exist which place into doubt the collectibility of the entire invoice. In this case, Receivables can recognize revenue only in the amount of applied receipts. See: Payment-Based Revenue Management.
The Revenue Contingency Analyzer is a concurrent program. You can define a submission schedule that controls how frequently the program will run. For example, you can define your schedule to run the program repeatedly at specific intervals, or on specific days of the week or month.
Note: Whenever you run the Submit Accounting program, Receivables first runs the Revenue Contingency Analyzer.
Time-based contingencies include:
Nonstandard refund policies
You define the standard refund period in the Revenue Policy page. See: Defining Your Revenue Policy.
An invoice line amount is deferred if the Refund contingency is found on an invoice line.
Fiscal funding clauses
An invoice line amount is deferred if the Fiscal Funding Clause contingency is found on an invoice line.
Cancellation provisions
An invoice line amount is deferred if the Cancellation contingency is found on an invoice line.
Forfeiture allowances
An invoice line amount is deferred if the Forfeiture contingency is found on an invoice line.
Acceptance clauses
An invoice line amount is deferred if the Acceptance contingency is found on an invoice line.
Acceptance clauses can be an exception. Sometimes your customer might send written acceptance before the acceptance period expires. In such cases, use the Revenue Accounting Management (RAM) wizard to record this early acceptance. Once recorded, Receivables determines if revenue recognition can be initiated for the invoice line:
If multiple contingencies exist on multiple invoice lines, then revenue recognition can occur at different times for different lines on the invoice. If multiple contingencies exist on a single invoice line, then revenue recognition for that line occurs only after the latest contingency expires.
If no unexpired contingencies remain on the invoice line, then Receivables initiates revenue recognition according to the initially assigned accounting rules.
If other unexpired contingencies remain on the invoice line, then Receivables does not initiate revenue recognition for the invoice line.
For example, you enter or import an invoice for a creditworthy customer, and one of the invoice lines is associated with both a nonstandard refund policy (50 days) and an acceptance clause (120 days). Receivables will not recognize revenue on this invoice line until the acceptance clause expires after 120 days.
If you obtain written acceptance from the customer after 80 days have elapsed, then use the Revenue Accounting Management (RAM) wizard to record the early acceptance. Since no other contingencies exist, this early acceptance triggers revenue recognition. Note that the GL date when you enter this early acceptance becomes the revenue recognition date for this invoice line.
A single invoice may contain both time-based contingencies, as well as contingencies that require payment before revenue can be recognized. In this case, revenue recognition will occur at different times for different lines on the invoice.
Upon receipt application:
Receivables recognizes revenue for lines that require only payment to initiate revenue recognition.
For the lines that are associated with one or more unexpired contingencies, Receivables keeps the revenue amount for that invoice line in the unearned revenue account, but flags it as revenue that is pending recognition until after the contingency expires.
For example, you enter or import an invoice for a customer who is not creditworthy. Additionally, Line 2 of the invoice is associated with a nonstandard refund policy (80 days).
The Revenue Management Engine initially defers the entire invoice amount to an unearned revenue account.
For all lines except Line 2, the Revenue Management Engine recognizes revenue in the amount of applied receipts only, according to the initially assigned accounting rules.
For Line 2, the Revenue Management Engine flags the amount of any applied receipts as pending revenue recognition. After the contingency expires, receipts that were already applied to Line 2 can be fully recognized as earned revenue.
Beginning on the 81st day, all future receipts applied to Line 2 will be immediately recognized as revenue.
In the examples below, the Revenue Contingency Analyzer runs every 30 days.
You enter a customer invoice with 6 lines. Lines 2 and 3 are associated with a fiscal funding clause (60 days) and Line 5 is associated with a cancellation provision (90 days).
Revenue for Lines 1, 4, and 6 can be fully recognized, either immediately or according to the invoice's initially assigned accounting rules.
After 60 days, the Revenue Contingency Analyzer runs and identifies that the fiscal funding clause on Lines 2 and 3 has expired. The Revenue Contingency Analyzer initiates revenue recognition in full for Lines 2 and 3.
After another 30 days, the Revenue Contingency Analyzer runs and identifies that the cancellation provision on Line 5 has expired. The Revenue Contingency Analyzer initiates revenue recognition in full for Line 5.
You import a customer invoice with 2 lines. Line 1 is $150 and Line 2 is $1,000. Line 2 is associated with an acceptance clause (60 days) and a cancellation provision (150 days). Additionally, the customer has been granted extended payment terms on this invoice.
Due to the existing contingencies, the Revenue Management Engine cannot recognize revenue for either line on this invoice.
After the first 30 days, the Revenue Contingency Analyzer runs, but does not initiate revenue recognition for either line on this invoice.
Another 15 days pass. You apply a $500 receipt against this invoice.
The $500 receipt is a partial payment. Receivables prorates this payment across the invoice lines, based on a weighted average formula.
Receivables recognizes revenue for Line 1 in the amount of $65.21.
Receivables cannot recognize revenue for Line 2 due to the acceptance clause and cancellation provision. Therefore, Receivables flags $434.79 for Line 2 as an amount that is pending revenue recognition.
Another 15 days pass. It has now been 60 days since the transaction date. The Revenue Contingency Analyzer runs on the 61st day, and identifies that the 60-day acceptance clause on Line 2 has expired. However, the $434.79 that is still pending cannot yet be recognized due to the cancellation provision.
75 days after the transaction date, you apply a $650 receipt against this invoice.
Receivables recognizes the remaining $84.79 in revenue for Line 1 and flags another $565.21 for Line 2 as an amount that is pending revenue recognition. The total amount for Line 2 that is pending revenue recognition is now $1,000.
On the 151st day, the Revenue Contingency Analyzer runs again and recognizes the entire $1,000 in revenue for Line 2.