Net Contract Asset or Liability per Element
The Net Contract Asset or Liability per Element journal entry adjusts account balances to present remaining obligations as either contract assets or contract liabilities. NetSuite evaluates revenue arrangements for this adjustment (called netting entry for short) only when unbilled receivables are grouped at the arrangement or sub-arrangement group level. The reclassification process reverses any netting entries in the next period.
The netting entry adjusts each element’s deferred revenue accounts so no element is a liability when the group is a net asset, and vice versa. After the unbilled receivable adjustment is created, NetSuite evaluates whether the elements appear as contract assets or contract liabilities. The adjustment reverses the amounts that cause any elements not to match the net for the group. The total of the reversed amounts are apportioned to other elements according to their net amount ratios. For an example of the net amount ratio calculation for contract assets, see Net Amount Ratio.
The following examples illustrate the Net Contract Asset or Liability per Element calculations for a contract asset and a contract liability.
Net Contract Asset
The following table uses the net amount ratios from Net Amount Ratio to produce the amounts for the netting entry. The adjustment reverses the element liability amount of 3.50, and applies the balancing credits to the asset lines according to their net amount ratios.
|
Element |
Cumulative Revenue Recognized |
Effective Cumulative Billing |
Element Asset |
Element Liability |
Net Amount Ratio |
Netting Entry Debit or Credit |
|---|---|---|---|---|---|---|
|
1 |
35 |
31.50 |
3.50 |
— |
3.50 ÷38.50 =0.0909091 |
–0.32 |
|
2 |
35 |
17.50 |
17.50 |
— |
17.50 ÷38.50 =0.4545455 |
–1.59 |
|
3 |
35 |
38.50 |
— |
3.50 |
— |
3.50 |
|
4 |
35 |
17.50 |
17.50 |
— |
17.50 ÷38.50 =0.4545455 |
–1.59 |
|
Total |
140 |
105.00 |
38.50 |
3.50 |
1 |
0.00 |
Net Contract Liability
The following table shows the calculations that support the netting entry in the example provided in Difference Between Element Level and Arrangement Level Grouping. In that example, when arrangement level grouping was applied, the result was a net liability, rather than a contract asset. The adjustment reverses the element asset amount of 10, and applies the balancing debits to the liability lines according to their net amount ratios.
|
Element |
Cumulative Revenue Recognized |
Effective Cumulative Billing |
Element Asset |
Element Liability |
Net Amount Ratio |
Netting Entry Debit or Credit |
|---|---|---|---|---|---|---|
|
1 |
10 |
12 |
— |
2 |
2 ÷25 =0.08 |
0.80 |
|
2 |
20 |
10 |
10 |
— |
— |
–10.00 |
|
3 |
15 |
38 |
— |
23 |
23 ÷25 =0.92 |
9.20 |
|
4 |
25 |
25 |
— |
— |
— |
— |
|
Total |
70 |
85 |
10 |
25 |
1 |
0.00 |