Advanced revenue management overview
The Advanced Revenue Management (Revenue Recognition) feature of NetSuite will automate many of the processes that are more manual in nature when using standard revenue management. This tip provides a high level overview of how to set up Revenue Recognition.
Revenue Recognition Rules
The first step in the process is to define the revenue recognition rules that can be assigned to a transaction. Once the recognition rules are defined, the rule can be selected at the item or transaction line level.
Required Fields –
- Name of Rev Rec Rule
- Recognition Method
a.Straight-line, by even periods – Recognizes revenue evenly for each period. All periods recognize equal amounts.
b. Straight-line, prorate first & last period – Recognizes equal amounts for periods other than the first and the final period. Amounts are prorated for the first and final periods based on the number of days in each period.
c. Straight-line, using exact days – Recognizes revenue amounts individually for each period based on the number of days in that period.
d. Straight-line, prorate first & last period (period-rate) – Determines the full number of periods in the revenue plan and allocates revenue based on the proportional period amount.
e. Custom – Enables you to define revenue recognition terms that include uneven periods and amounts.
3. Recognition Period – In number of months
4. Amount Source
a. Event-Percent based on amount – Use this option with revenue plans created on Revenue Arrangement Creation or on Billing.
b. Event-Percent based on quantity – Use this option with revenue plans created on Fulfillment.
c. Event-Percent Complete – Use this option with Project Progress. When you select this option, other fields on the rule become read-only.
5. Rev Rec Start Date Source
a. Arrangement Transaction Date – The date of the revenue arrangement.
b. Event Date – The date of the event that triggers the creation of the revenue recognition plan. The event is determined by the Create Revenue Plans On option on the item record.
c. Source Date – The date of the source customer performance obligation that generates the revenue element.
d. Revenue Element Start Date – The start date on the revenue element record. This date is not generated automatically. You must use this start date source if you want the rule to be included in the list of revenue recognition rules for journal entries.
6. Rev Rec End Date Source
a. Revenue Term in Months – The end date is derived from the revenue plan start date and the value in the Term in Months field. Exact months are used.
b. Recognition Period – The end date is derived from the revenue plan start date and the value in the Recognition Period field. The end date in the revenue plan is the last day of the period, and partial periods are included in the count.
c. Revenue Element End Date – The end date on the revenue element record. This date is not generated automatically.
d. Arrangement Transaction Date, Event Date, and Source Date – Use these options to recognize revenue immediately when the matching Rev Rec Start Date Source values are selected.
7. End Date Change Impact
a. Update Remaining Periods Only – The remaining unrecognized revenue is divided by the total number of months or periods remaining.
b. Update All Periods – The total revenue is divided by the total number of months or periods. Adjustments to catch up or claw back revenue are made in the current period for previously recognized revenue.
Assign Revenue Rule – Item Level
The Revenue Rule is assigned at the Item level.
Automatically created by the system when using Advanced Revenue Recognition Management. The arrangement takes predefined revenue sources and creates revenue allocation and recognition elements.
Revenue Elements (List>Accounting)
Revenue Elements are created from Revenue Arrangements and correspond to individual lines in the source document. The revenue elements are included as lines on the revenue arrangement and there can be several elements for an arrangement.
Revenue Recognition Plans
Derived from the Revenue Rule and give a period by period schedule of revenue recognition. The plans could include both Actual and Forecasted revenues.
Revenue Reporting (Reports>Revenue)
NetSuite has several standard Revenue & Deferred Revenue Reports in addition to the ability to create custom reports and Saved Searches:
- Deferred Revenue by Customer and Item
- Revenue by Customer and Item
- Deferred Revenue Waterfall
- Revenue Recognition Forecast
- Billing and Revenue Summary
- Deferred Revenue Reclassification Activity
- Deferred Revenue Reclassification
- Deferred Revenue Roll-forward (also by customer)