Define accounting rules to create revenue recognition schedules for your invoices. Accounting rules determine the number of periods and percentage of total revenue to record in each accounting period. You can use accounting rules with transactions that you import into Receivables using AutoInvoice and with invoices that you create manually in the Transaction windows. You can define an unlimited number of accounting rules.
When you run the Revenue Recognition program for an invoice that is associated with one or more accounting rules, Receivables creates the invoice's revenue distributions for the period or periods in which the rules fall.
Note: Revenue Recognition creates accounting distributions for all periods of status Open, Future, or Not Open. If any period has a status of Closed or Close Pending, then Revenue Recognition creates the distributions in the next Open, Future, or Not Open period.
See: Recognizing Revenue.
Depending on your business needs, you may require deferred accounting rules, which you can create by selecting the Deferred Revenue check box during rule definition. Deferred accounting rules let you defer revenue to an unearned revenue account until you are ready to specify the revenue recognition schedule. See: Deferred Accounting Rules.
You can assign a default accounting rule to your items in the Master Item window (Invoicing tabbed region) and to your Standard Memo Lines in the Standard Memo Lines window. See: Standard Memo Lines and Defining Items.
Attention: Invoicing and Accounting Rules are not applicable if you are using the Cash Basis method of accounting. If you use the Cash Basis method, AutoInvoice will reject any transaction lines that are associated with invoice or accounting rules.
If you want to credit an invoice that uses invoice and accounting rules to schedule revenue and billed receivable recognition, you can specify how you want to adjust this invoice's revenue account assignments by choosing a Rules Method in the Credit Memos window. See: Crediting Transactions.
Prerequisites
Navigate to the Accounting Rules window.
Enter a Name for this accounting rule.
Enter an accounting rule Type.
Enter Fixed Schedule to prorate revenue recognition evenly over a predefined period of time. The revenue recognition schedule is always the same every time you choose this accounting rule. For example, if you have four schedules for your rule with this type, you will recognize twenty-five percent of your revenue at the end of each schedule.
Enter Variable Schedule to later specify, during invoice entry, the number of periods over which you want to recognize revenue for invoices to which you assign this rule. You can assign this type of accounting rule to invoices that you manually enter in the Transaction window or import into Receivables using AutoInvoice.
The revenue recognition schedule changes for invoices that are assigned this type of accounting rule depending upon the value that you either pass through AutoInvoice or specify when you manually enter an invoice.
Enter Daily Revenue Rate, All Periods to have Receivables use a daily revenue rate to calculate the precise amount of revenue for each full and partial period in the schedule. Use accounting rules of this type to meet strict revenue accounting standards.
Enter Daily Revenue Rate, Partial Periods to have Receivables use a daily revenue rate to calculate the precise amount of revenue for only partial period in the schedule. This rule provides you with an even, prorated revenue distribution across the schedule's full periods.
See: Using Rules.
Enter the period to use for your accounting rule schedule.
You can choose from any of the period types you defined, but you can only choose a period type that has overlapping dates if it is an adjusting period. In addition, you can only choose Specific Date as your period type for accounting rules to which you have assigned a type of Fixed Schedule. You can only update this field for the accounting rule IMMEDIATE. See: Defining Period Types.
Attention: If you have an accounting period type that is not Month and you use AutoInvoice with Oracle Order Management, you should update the Period field for the IMMEDIATE accounting rule to the same period as your accounting period type.
If this accounting rule type is Fixed Schedule, enter the number of periods to use for your accounting rule schedule. For example, if you entered a period of Weekly and you enter 3 here, Receivables creates a rule schedule for three weekly periods.
If you want to delay specifying the revenue recognition schedule for this rule, check the Deferred Revenue check box. If you select this check box, then revenue is deferred to an unearned revenue account, and you must later use the Revenue Accounting Management (RAM) wizard to recognize the revenue. See: Deferred Accounting Rules.
Define your revenue recognition schedule for this accounting rule. Enter the percentages of revenue to recognize within each period of your accounting rule.
If this accounting rule type is Fixed Schedule, Receivables displays a rule schedule according to the period and number of periods you entered. Receivables determines the schedule by evenly prorating all the revenue across all periods (you can change this information). The sum of all periods for this type must equal 100 percent.
If this accounting rule type is Variable Schedule, you do not need to enter any information. Receivables does not display the default rule schedule for an accounting rule of this type because the number of periods is unknown. However, if you want to recognize a specific revenue percentage in the first period, you can enter that percentage here. In this case, Receivables prorates the remaining revenue percentage across the remaining periods. Receivables uses the number of periods that you either pass through AutoInvoice or enter manually in the Transaction window to determine the payment schedule of your accounting rule.
If this accounting rule type is Fixed Schedule, and you choose Specific Date as your period, enter specific dates for each period of the revenue recognition schedule for this rule.
You create deferred accounting rules by selecting the Deferred Revenue check box in the Invoicing and Accounting Rules window during rule definition. When you use deferred accounting rules, the Revenue Recognition program creates a single distribution per line that posts to an unearned revenue GL account. You later earn the revenue using the RAM wizard. See: Revenue Accounting.
You can use deferred accounting rules only for invoices that are assigned the Bill in Advance invoicing rule. If the invoicing rule on a transaction is Bill in Arrears, the Revenue Recognition program ignores the deferred flag.
If you use a deferred accounting rule with a single accounting period, Receivables recognizes the revenue in the period that you specify with the RAM wizard.
If you use a deferred accounting rule with multiple accounting periods, Revenue Accounting creates the revenue recognition schedule based on the rule, and the start date is determined by the GL start date that you entered using the RAM wizard. If the GL start date occurs in a closed accounting period, Revenue Accounting posts that portion of revenue into the subsequent open accounting period.
If you use a non-deferred accounting rule with multiple accounting periods, Revenue Accounting uses the schedule created by the Revenue Recognition program. If an accounting period is closed, Revenue Accounting posts that portion of revenue into the subsequent open accounting period.
The tables below illustrate the difference between deferred and non-deferred rules.
This table illustrates what happens when you have a $300 invoice with a 3 month deferred rule and an original start date of February 2. In this example, all periods are open.
| GL Date | February | March | April | May |
|---|---|---|---|---|
| February 2 | $100 | $100 | $100 | $0 |
| March 2 | $0 | $100 | $100 | $100 |
The February 2 row shows what the original revenue recognition schedule would have been if the accounting rule were not deferred. However, the rule is deferred in this example, which means that Receivables creates a single distribution line that posts to an unearned revenue GL account when you run Revenue Recognition.
Later, you use the RAM wizard to earn revenue on this invoice, but perhaps you entered March 2 as the GL start date. Revenue Accounting honors the original schedule, illustrated by the February 2 row. However, Revenue Accounting ignores the original start date from the transaction and uses the GL date, March 2, that you entered. This causes Receivables to shift the schedule by one month, illustrated by the March 2 row.
This table illustrates what happens when you have a $300 invoice with a 3 month non-deferred rule. In this example, February is open at first, but is later closed before you can finish adjusting this invoice's revenue.
| GL Date | February | March | April | May |
|---|---|---|---|---|
| February 2 | $100 | $100 | $100 | $0 |
| March 2 | $0 | $200 | $100 | $0 |
The February 2 row shows the original revenue recognition schedule that Receivables creates when you first run Revenue Recognition. At this stage, February is open.
Later, perhaps you discovered that the schedule was wrong, so you used the RAM wizard to unearn, and then correctly re-earn, the invoice's revenue. When you re-earn revenue on invoices with non-deferred accounting rules, Revenue Accounting uses the original schedule, illustrated by the February 2 row.
In this example, however, at this stage, February is now closed. Therefore, Receivables posts February's allocation to March, illustrated by the March 2 row.