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:
-
Emergency Support (Usage Support A): Billed at $2.50 a minute.
-
Standard Support (Usage Support B): Billed at $1.30 a minute.
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:
-
Create Revenue Plans On: Subscription Events
-
Allocation Type: Exclude
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).
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 |
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 |
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 |