Example of Prepay with Drawdown and Revenue Recognition

The Advanced Revenue Management (Essentials) feature integrates with the Prepay with Drawdown feature. This integration lets you recognize revenue for both prepay and usage elements.

In this example, Vertex Company pays $5,000 upfront for a three-month service contract with IT Support Company. IT Support Company has different billing rates for various support types:

This example uses the following revenue recognition rule:

Recognition Method

Amount Source

Rev Rec Start Date Source

Rev Rec End Date Source

Straight-line, by even periods

Event-Percent based on amount

Event Date

Term in Days (0)

The fields in the Revenue Recognition/Amortization subtab on the items are set to the following:

For information about configuring subscription items, Configuring Subscription Items for Revenue Recognition.

The Unbilled Receivable Adjustment Journal Grouping accounting preference is set to Element. For information about this accounting preference, Groupings for Unbilled Receivable Adjustment Journal Entries.

May Activity

In May, the following records are created in NetSuite:

  • One subscription plan

  • One price book

  • One subscription

  • One invoice

  • Two usages

  • Six charges

  • One revenue arrangement

To learn more about these records, see SuiteBilling Management and Advanced Revenue Management (Essentials) and (Revenue Allocation).

Note:

Charges aren't shown here but are reflected in the revenue arrangement updates for each accounting period.

Three-Month Subscription

The subscription, subscription plan, and price book include three items. The prepay line has a minimum balance of $300, which triggers a $5,000 is refilled when the $300 threshold is met.

Item

Line Type

Billing Mode

Prepay Line

Price

Charge Frequency

Start Date

End Date

Prepaid Service

Prepay

In Advance

Prepay Amount: $5,000.00

Minimum Balance: $300

Auto-Refill

5/1/2024

7/31/2024

Usage Support A

Usage

In Arrears

Prepaid Service

From 0: $2.50

Monthly

5/1/2024

7/31/2024

Usage Support B

Usage

In Arrears

Prepaid Service

From 0: $1.30

Monthly

5/1/2024

7/31/2024

May Invoice

On May 1, the IT Support Company bills the full prepay amount at the start of the subscription.

Item

Quantity

Rate

Amount

Prepaid Service

1

5,000

$5,000

May Usages

The Vertex Company uses 1,200 minutes of emergency support and 1,500 minutes of standard support in May. The IT Support Company creates two usage records at the end of May to represent this usage.

Item

Quantity

Rate

Amount

Usage Support A

1,200

2.50

$3,000

Usage Support B

1,500

1.30

$1,950

May Revenue Arrangement

IT Support Company creates six charges for the prepay amount and the two usages. The revenue arrangement is updated to reflect the charges and the refill, adjusting the quantity and sales amount. The Prepaid Service is refilled because it is set to Auto-Refill at a $300 minimum balance, and the remaining unused balance is $50. The Prepaid Service item now has a sales amount balance of $5,050, combining the $5,000 refill with the remaining $50 unused balance.

Item

Quantity

Sales Amount

Revenue Amount

Start Date

End Date

Usage Support A

1,200

$3,000

$3,000

5/1/2024

7/31/2024

Usage Support B

1,500

$1,950

$1,950

5/1/2024

7/31/2024

Prepaid Service

1

$5,050

$5,050

5/1/2024

7/31/2024

May Revenue Plan

The IT Support Company updates their revenue plans. The planned recognition period for the Prepaid Service item is July because the unused prepaid amount is recognized at the end of the subscription term. The subscription term ends July 31, 2024.

Item

Plan Total

Amount (Recognized)

Remaining

Planned Period

Usage Support A

$3,000

$0.00

$3,000

May

Usage Support B

$1,950

$0.00

$1,950

May

Prepaid Service

$5,050

$0.00

$5,050

July

May Revenue Recognition Journal

The IT Support Company recognizes the two usages at the end of May.

Account

Debit

Credit

Usage Support A Deferred Revenue

3,000

 

Usage Support A Income

 

3,000

Usage Support B Deferred Revenue

1,950

 

Usage Support B Income

 

1,950

Note:

The usages are billed in arrears, so not billed in May.

May Unbilled Receivable Adjustment

The IT Support Company runs reclassification at the end of May. In May, an unbilled receivable adjustment is posted because cumulative billing is lower than cumulative revenue recognition for Usage Support A and B.

The unbilled amounts are calculated as follows:

  • For Usage Support A, the billed amount is 0 and the recognized amount is $3,000, leaving an unbilled amount of $3,000

  • For Usage Support B, the billed amount is 0 and the recognized amount is $1,950, leaving an unbilled amount of $1,950.

Account

Debit

Credit

Usage Support A Deferred Revenue

 

3,000

Usage Support B Deferred Revenue

 

1,950

Unbilled Receivable

4,950

 

The IT Support Company closes the May accounting period.

June Activity

In June, the following records are created in NetSuite:

  • One invoice

  • Two usages

  • Four charges

  • One revenue recognition journal

  • One prior unbilled receivable adjustment

  • One unbilled receivable adjustment

June Invoice

On June 1, IT Support Company bills the May usages. $3,000 is deducted from the Prepaid Service line and added to Usage Support A. Another $1,950 is deducted from the Prepaid Service line and added to Usage Support B. In sum, $4,950 is deducted from the Prepaid Service line. Because the Prepaid Service line has an Auto-Refill minimum balance of $300 and only $50 remains, the Prepaid Service is refilled and immediately billed $5,000.

Item

Quantity

Rate

Amount

Usage Support A

1,200

2.50

$3,000

Usage Support B

1,500

1.30

$1,950

Prepaid Service

1

-3,000

$-3,000

Prepaid Service

1

-1,950

$-1,950

Prepaid Service (refill)

1

5,000

$5,000

June Usages

Vertex Company uses 500 minutes of emergency support and 2,000 minutes of standard support in June. IT Support Company creates two usage records at the end of June to represent this usage.

Item

Quantity

Rate

Amount

Usage Support A

500

2.50

$1,250

Usage Support B

2,000

1.30

$2,600

Note:

The usages aren't billed in June because they are billed in arrears.

June Revenue Arrangement

IT Support Company creates four charges for the two usages. The revenue arrangement quantity and sales amount are updated to reflect the charges. No refill occurs because $1,200 remains on the Prepaid Service line, which doesn't meet the $300 auto-refill minimum.

Item

Quantity

Sales Amount

Revenue Amount

Start Date

End Date

Usage Support A

1,700

$4,250

$4,250

5/1/2024

7/31/2024

Usage Support B

3,500

$4,550

$4,550

5/1/2024

7/31/2024

Prepaid Service

1

$1,200

$1,200

5/1/2024

7/31/2024

June Revenue Plan

The IT Support Company updates their revenue plans.

Item

Plan Total

Amount (Recognized)

Remaining

Planned Period

Usage Support A

$4,250

$3,000

$1,250

June

Usage Support B

$4,550

$1,950

$2,600

June

Prepaid Service

$1,200

$0.00

$1,200

July

June Revenue Recognition Journal

IT Support Company recognizes the two usages at the end of June.

Account

Debit

Credit

Usage Support A Deferred Revenue

1,250

 

Usage Support A Income

 

1,250

Usage Support B Deferred Revenue

2,600

 

Usage Support B Income

 

2,600

June Unbilled Receivable Adjustments

IT Support Company runs reclassification at the end of June. Two unbilled receivable adjustments are created.

A reversal of the prior unbilled receivable adjustment is created to reverse the May adjustment.

Account

Debit

Credit

Usage Support A Deferred Revenue

3,000

 

Usage Support B Deferred Revenue

1,950

 

Unbilled Receivable

 

4,950

Another unbilled receivable adjustment is created because cumulative billing is less than cumulative revenue recognition for Usage Support A and Usage Support B.

The unbilled receivable calculations are as follows:

  • For Usage Support A, the billed amount is $3,000 and the recognized amount is $4,250, leaving an unbilled amount of $1,250.

  • For Usage Support B, the billed amount is $1,950 and the recognized amount is $4,550, leaving an unbilled amount of $2,600.

Account

Debit

Credit

Usage Support A Deferred Revenue

 

1,250

Usage Support B Deferred Revenue

 

2,600

Unbilled Receivable

3,850

 

IT Support Company closes the June accounting period.

July Activity

In July, the following records are created in NetSuite:

  • One invoice

  • One revenue recognition journal

  • One prior unbilled receivable adjustment

July Invoice

On July 1, IT Support Company bills the usages from June. $1,250 is deducted from the Prepaid Service line and added to Usage Support A. Another $2,600 is deducted from the Prepaid Service line and added to Usage Support B. In sum, $3,850 is deducted from the remaining balance of $5,050 on the Prepaid Service line. No refill occurred because $1,200 remains on the Prepaid Service line, which doesn't meet the $300 auto-refill minimum.

Item

Quantity

Rate

Amount

Usage Support A

500

2.50

$1,250

Usage Support B

2,000

1.30

$2,600

Prepaid Service

1

-1,250

$-1,250

Prepaid Service

1

-2,600

$-2,600

July Revenue Recognition Journal

Because Vertex Company doesn't use any support in July, no usages are created. Because the subscription ends July 31, IT Support Company recognizes the remaining balance of $1,200 on the Prepaid Service element. The recognized amount now equals the billed amount.

Account

Debit

Credit

Prepaid Service Deferred Revenue

1,200

 

Prepaid Service Income

 

1,200

The subscription term has ended, and all revenue was recognized.

July Unbilled Receivable Adjustment

A reversal of the prior unbilled receivable adjustment is created to reverse the June adjustment.

Account

Debit

Credit

Usage Support A Deferred Revenue

1,250

 

Usage Support B Deferred Revenue

2,600

 

Unbilled Receivable

 

3,850

Related Topics

General Notices