Understanding Revenue Recognition Template Terms

Revenue recognition templates provide the basic terms used to generate revenue recognition schedules. Review the following descriptions of the terms that you use in NetSuite revenue recognition templates before you begin to define them:

• Revenue Recognition Template Types

• Revenue Recognition Methods

• Revenue Recognition Term Source

• Revenue Recognition Period

• Revenue Recognition Period Offset and Start Offset

• Revenue Recognition Initial Amount

These terms appear on the Revenue Recognition Template page at Lists > Accounting > Revenue Recognition Templates > New.

For the steps to create each revenue recognition template, see Defining a Revenue Recognition Template.

Revenue Recognition Template Types

Two types of templates are available:

• Standard – Select this type for most templates. Standard templates require a recognition Method and Term Source.

• Variable – Select this type to use this template for percent-complete revenue recognition for service items that are part of projects. A variable revenue recognition schedule recognizes revenue for its balance as time is entered against the related project, until the project is completed.

  This type of schedule is available if the Project Management feature is enabled. For information, see Using Percent-Complete Revenue Recognition for Projects.

Revenue Recognition Methods

You can choose from a number of straight-line revenue recognition methods, or define your own custom method.

Straight-Line Revenue Recognition Methods

The following straight-line methods are available:

• Straight-line, by even periods – recognizes revenue evenly for each period. Amounts are not prorated based on the number of days in any period. All periods recognize equal amounts.

  The term includes the start date and end date you define.

• Straight-line, prorate first & last period – recognizes equal amounts for periods other than the first and the final period, regardless of the number of days in each period. Amounts are prorated for the first period and the final period based on the number of days in each period.

• Straight-line, using exact days – recognizes revenue amounts individually for each period based on the number of days in each period. Because each day in the term recognizes an equal amount, each period may recognize a different amount.

• Straight-line, prorate first & last period (period-rate) – determines the full number of periods in the schedule and allocates revenue based on the proportional period amount.

For examples of how revenue is recognized using straight-line methods, see Straight-Line Revenue Recognition Method Examples.

Custom Revenue Recognition Methods

The Custom method enables you to define revenue recognition terms that include uneven periods, amounts, and multiple income accounts.

For example, you can define a custom schedule as:

• 1st period – 40% of net income posts to income account 4000, 10% to account 4001

• 2nd period through 6th period – 10% of net income to posts to account 4002

When you select Custom for the Method, you define revenue recognition terms by entering information in the columns in the lower portion of the page:

• Account – the income account you want to post deferred revenue into. Make sure the currency on the account matches the intended transaction currency. Create multiple custom method templates as needed to support foreign currency transactions.

• Period Offset – the number of periods to postpone the start of the recognition schedule for this line. The first period to recognize has an offset of zero.

  For example, if your recognition terms are based on 30-day periods, enter a 2 in this field to wait 60 days before you begin recognizing revenue for this line.

  You can recognize different amounts to different accounts within the same period when you set several lines to the same period offset value.

• Amount – the revenue amount to recognize as a percentage or a currency value. Include the percent sign to indicate a percentage, for example, 10%.

Revenue Recognition Term Source

Term Source determines which dates to use to recognize revenue.

Select from the following:

• Rev Rec Dates Specified on Transaction – Uses the invoice or cash sale as the source to determine the revenue recognition period.

  The revenue recognition period is determined by Rev. Rec. start and end dates entered on the invoice or cash sale.

  The invoice or cash sale Rev. Rec. dates can use the sales order as the original source, but subsequent changes to Rev. Rec. dates on the sales order do not change the Rev. Rec. dates on the invoice.

  When you change the Rev. Rec. start or end dates on the invoice or cash sale before the schedule is created, the revenue recognition schedule refreshes based on the new dates. After a schedule is created, the dates cannot be changed.

  If the term source Rev Rec Dates Specified On Transaction is selected on a template that is used on a sales order, then the sales order revenue recognition dates are used because the invoice dates are not yet known.

• Rev Rec Dates Specified on Sales Order – Uses the sales order revenue recognition dates as the source to determine the revenue recognition period. The revenue recognition period is determined by Rev Rec start and end dates entered on the sales order. This choice appears only when you use the sales order feature.

  The Rev Rec dates are derived from the sales order. Subsequent changes to Rev Rec dates on the sales order do not change the Rev Rec dates on an invoice that was created prior to the change. Changes to sales order dates do change the dates on the schedule if no journal entry has posted from the schedule.

  If the sales order has multiple invoices, revenue recognition schedules are created for each invoice. The sales order determines the periods and amounts per period. The revenue recognition schedule for the first invoice begins with the first period and amount and includes as many periods as needed to schedule the invoice amount. Schedules for subsequent invoices begin with any remaining amount in the last period of the previous schedule and continue until the full invoice amount is scheduled.

  For example, create a sales order with the following values on an item line:

  Field	Value
  Rev. Rec. Schedule	Standard template with the following values: Term Source – Rev Rec Dates Specified on Sales Order Method – Straight-line, by even periods Period – 12
  Rev. Rec. Start Date	January 1
  Rev. Rec. End Date	December 31
  Quantity	10
  Unit Price	$120
  Amount	$1,200

  For purposes of revenue recognition, you have $100 per month for 12 months beginning in January.

  If you create the first invoice for a quantity of 3.5, you get a revenue recognition schedule for $420. It has $100 per month for the first four months of January, February, March, and April, and it has $20 in May. Then when you create the next invoice, its revenue recognition schedule begins with $80 in May. If the second invoice is again for a quantity of 3.5, the $420 is divided with $80 in May, $100 each month for June, July, and August, and $40 in September. When you invoice the final $360, it is scheduled for $60 in September and $100 each month for October, November, and December. The invoice dates have no role in determining the revenue recognition schedule dates.

  For another example of the behavior of this term source with multiple invoices, see Example with Rev Rec Dates Specified on Sales Order.

• Billing Schedule, Transaction Date on Sales Order –Uses the transaction date of the sales order to determine the revenue recognition start date.

  This choice appears only when the Advanced Billing feature is enabled. For more information on Advanced Billing, see Billing Customers Using Billing Schedules. This term source does not support the fixed bid, milestone project billing type.

  This term source creates a schedule to recognize revenue based on the Sales Order transaction date. NetSuite dates subsequent invoices based on the assigned billing schedule.

  Rev Rec start and end dates entered on the Sales Order are not sourced.

  For example, a Sales Order is set up as follows:

  • Sales Order transaction date =Mar. 25, 2006

  • Billed quarterly, 4 bills total

  Bill created on:	Rev Rec dates:
  Mar. 25, 2006	Mar. 25 through June 24, 2006
  June 25, 2006	June 25 through Sept. 24, 2006
  Sept. 25, 2006	Sept. 25 through Dec. 24, 2006
  Dec. 25, 2006	Dec. 25, 2006, through Mar. 24, 2007

• Billing Schedule, Rev Rec Date on Sales Order – Uses the sales order revenue recognition dates as the source to determine the revenue recognition period.

  This choice appears only when the Advanced Billing feature is enabled. For more information on Advanced Billing, see Billing Customers Using Billing Schedules. This term source does not support the fixed bid, milestone project billing type.

  This term source creates a schedule to recognize revenue based on the Sales Order revenue recognition dates, not the transaction dates. NetSuite dates subsequent invoices based on the assigned billing schedule.

  For example, a Sales Order is set up as follows:

  • Sales Order Rev Rec Start Date =Mar. 25, 2006

  • Billed quarterly, 4 bills total

  Bill created on:	Rev Rec dates:
  Mar. 25, 2006	Mar. 25 through June 24, 2006
  June 25, 2006	June 25 through Sept. 24, 2006
  Sept. 25, 2006	Sept. 25 through Dec. 24, 2006
  Dec. 25, 2006	Dec. 25, 2006, through Mar. 24, 2007

Revenue Recognition Period

The Recognition Period defines the range of time for revenue recognition by setting the number of periods over which the schedule is recognized. For example, if you enter 12, then the schedule runs for 12 periods starting from the Rev Rec Start Date. If the Rev Rec Start Date is mid-month, the partial month counts as one of the periods in the total.

If you enter a start date in the transaction and specify a recognition period in the template, NetSuite determines the appropriate end date and generates the recognition schedule.

If you enter both a start date and an end date, then these dates override the recognition period set on the template.

If you enter neither a start date nor an end date, NetSuite uses the transaction date for the start date and the number of periods in the template to determine the end date. In this case, the end date is always the last day of the period, and partial periods are included in the count.

The following examples show how the recognition period field functions when you enter dates on line items in the transaction. The transaction date is mid-month, January 15, 2007. The January 1 start dates are entered in the line item as Rev. Rec. Start Date.

Revenue Recognition Period Offset and Start Offset

You can define an Offset value for a revenue recognition template to delay the start of a schedule. Two types of Offset are available:

• Period Offset moves the entire recognition period ahead by x number of periods, keeping the same number of periods.

  For example, if your amortization terms are based on 30-day periods, enter a 2 in this field to wait 60 days before you begin recognizing revenue. This can be useful for services you sell that have a probationary or trial period.

• Start Offset delays the beginning of recognition, changing the number of periods, and keeping the same end date.

  To use a start offset, you specify the number of periods to postpone the start of the recognition for a schedule. Setting a start offset changes the number of periods in the schedule because it postpones the beginning, but does not change the final period of the schedule. You must have at least one more period in the schedule than the number of periods in the start offset.

  For example, you have contracted with a customer to recognize 25% of a $1200 item immediately.

  • Initial amount =25%, or $300.

  • Method =Straight-line, by even periods

  • Recognition period =12 months

  The remaining $900 is recognized according to the item's schedule:

  Period	Income
  1	0
  2	0
  3	$300 (initial)
  4	$100
  5	$100
  ...	...
  12	$100

Revenue Recognition Initial Amount

The initial amount is a percentage or fixed currency amount to be recognized in the first recognition period. After the initial amount, the remainder is recognized according to the revenue recognition schedule.

For example, you have contracted with a customer to recognize 25% of a $1200 item immediately.

• Initial amount =25%, or $300.

• Method =Straight-line, by even periods

• Recognition period =12 months

The remaining $900 is recognized according to the item's schedule:

General Notices