SD2020: SD Deferred Revenue

Recognition v 1.0

Revenue
Recognition
Process

India SAP CoE, Slide 1

Deferred Revenue…?
Deferred Revenue is a liability that is created when the cash is
received by a company for goods and services not yet been
provided

Deferred revenue is recorded in specific industries under particular

circumstances

For instance, a software company might post deferred revenue for

a maintenance agreement under which services will be provided
over several years

A golf club might record deferred revenue for member initiation fees
and recognize the revenue as the players shoot their rounds

India SAP CoE, Slide 2

Deferred Revenue Recognition
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 3
Deferred Revenue Recognition
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 4
Purpose
Revenues should be recognized when earned and expenses
should be recognized when incurred . Revenue is recorded when
earned, regardless of the timing of cash receipts

Deferred revenue results when cash is received in advance of

revenue being earned

Deferred revenue is a liability on the balance sheet until it is

earned. Once earned, the liability is reduced and revenue is
recorded in the general ledger

When recording cash receipts, it is important to determine

whether the cash represents earned revenue or deferred revenue

India SAP CoE, Slide 5

Use

Revenue accruals/deferrals have to be made in the general ledger for revenues

that do not become effective for revenue purposes until a time in the future

Revenues become effective in the future, if the service upon which the revenue
is based is actually performed in the future. Realization of revenues must
therefore be viewed separately to billing

Revenues and accrued/deferred revenues must be posted to separate general

ledger accounts. Accrual/deferral is performed using deferred revenue accounts

India SAP CoE, Slide 6

Challenges

To determine whether the cash receipt represents

earned revenue or deferred revenue

To ensure the revenues are assigned to the posting

period in which they are posted

India SAP CoE, Slide 7

Deferred Revenue Recognition
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 8
Revenue Recognition- Methods
REVENUE RECOGNITION: The point at which revenue (income) is
credited to a revenue account in General Ledger. There are three
possible types

Standard : Revenue is recognized at time of invoice

Time-based : Revenue is recognized in equal proportions between

specific start and end dates based on the number of posting periods
defined at the company code level. Revenue recognition for time-based
documents can occur before, during, or after the invoice process

Service-based : Revenue is recognized based on the occurrence of

certain events such as goods issue or the performance of a service.
Revenue recognition for performance-based documents can occur
before, during, or after the invoice process

India SAP CoE, Slide 9

Time Based Revenue Recognition
For time-related revenue recognition you can carry out recognition over a specific
period of time. An example of this is revenue recognition for the length of a service
contract like a subscription.

A customer signs up and pays for 1 year subscription at a cost $1200. The
revenue for the subscription in recognized on a monthly basis of $100 per month.
Receivable
Sales $1200
Invoice
Order/Contract

Accrued Revenue
$100 $1200
Revenue
$100
Recognition
……
Process
……

Revenue
$100
$100
……
……

India SAP CoE, Slide 10

Time Based Revenue Recognition
Rev Receivable tables Sales and Distribution FI

Create control lines; Contract

revenue lines (with billing plan)

Create Invoice

Create accounting doc.;

Create reference lines;
Release Invoice to Accounting DR; receivables ,CR;
Update control lines
deferred

Create accounting doc.;

Update control lines; Realize revenue for the selected
DR; deferred ,CR;
revenue lines period VF44
revenue

The process indicates the Posting of Revenue ( T code: VF44) is used after invoice.

India SAP CoE, Slide 11

Service Based Revenue Recognition
For service-based revenue recognition you can carry out recognition on the basis
of a specific event , such as a seminar or coaching session, or series of.

The customer signs up for a series of four one-on-one coaching sessions and pays
$800. Each coaching session triggers an event to recognize $200 of revenue.

Receivable
Sales $800
Invoice
Order/Contract

Accrued Revenue
$200 $800
Revenue
$200
Seminars/Coaching Recognition
……
Process
Sessions ……

Revenue
$200
$200
……
……

India SAP CoE, Slide 12

Service Based Revenue Recognition
Rev Receivable tables Sales and Distribution FI
Contract
Create control lines; (with billing plan)

Create Delivery

Create revenue lines Post Goods Issue

Create Invoice

Create accounting doc.;

Create reference lines; Release Invoice to Accounting DR; receivables ,CR;
Update control lines
deferred

Update control lines; Realize revenue for the selected Create accounting doc.;
revenue lines period VF44 DR; deferred ,CR;
revenue

The process indicates the Posting of Revenue ( T code: vf44) is used after invoice.

India SAP CoE, Slide 13

Limitations
The Deferred Revenue recognition is not possible in the following
Cases

• Revenue recognition for Cross Company processing

• Revenue recognition for Taxes
• Revenue recognition in Scheduling Agreements
• Revenue recognition for Third party processing
• Revenue recognition in Down payments
• Revenue recognition in proof of delivery
• IS-OIL process with revenue recognition
• CRM with revenue recognition

India SAP CoE, Slide 14

Deferred Revenue Recognition
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 15
Steps
Set up of Revenue Recognition processes
 FI accounts and their settings
 SD Item categories with revenue recognition type
 Account determination

Accounts required for revenue recognition process

 Revenue account (recognized revenues)
 Receivables account ( customer account)
 Revenues to be deferred ( deferred revenue account)
 Non-Billed receivables account.

India SAP CoE, Slide 16

Item category Controls - Time Based

IMG---- SD----Sales ----- Sales Document item---- Define item categories

India SAP CoE, Slide 17

Item category Controls - Service Based

IMG---- SD---- Sales ----- Sales Document item---- Define item categories

India SAP CoE, Slide 18

Account Assignment - Revenue/Deferred

Deferred
Revenue a/c

IMG---- SD----Acct Assign/Costing----- Maintain acct. determination---Assign G/L

Accts for revenues and deferred revenues.

India SAP CoE, Slide 19

Account Assignment – Non-Billed Receivables

Non-Billed Receivable account

is a special G/L account used
to determine revenue which
has been implemented but not
yet billed

IMG---- SD----Acct Assign/Costing----- Maintain acct. determination---Assign

acct. for unbilled receivables (OVUR)

India SAP CoE, Slide 20

Sales Contract - Create

Create Contract-T code VA41

India SAP CoE, Slide 21

Revenue Recognition Settings

India SAP CoE, Slide 22

Revenue Recognition setting

India SAP CoE, Slide 23

Invoice

India SAP CoE, Slide 24

Accounting Document

Posting to Deferred
Revenue a/c

India SAP CoE, Slide 25

Document Flow

Before
Revenue
Recognition

India SAP CoE, Slide 26

Revenue Recognition Posting Program

Use transaction code VF44 to post Revenue

India SAP CoE, Slide 27

Document Flow

After revenue
recognition

India SAP CoE, Slide 28

Deferred Revenue Recognition
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 29
LetMe
Transactions
VA01 Create Sales Order

VA02/VA42 Change mode for Order/Contract

VA41 Create Contract
Create Billing
VF01

VF02 Change mode

VF44 Posting revenue

VF47 Check inconsistency

India SAP CoE, Slide 30

Deferred Revenue Recognition
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 31
Additional info
Item Categories in Revenue Recognition
a) Used with time based revenue recognition
Type A b) Used with credit/debit memo time based revenue
recognition with memo request.

a) Used with service based revenue recognition in contracts

Type B with call off-order
b) Used with service based revenue recognition in returns
process with reference to order; contract and call off-order.

Type D Used with time based and billing related revenue recognition.

Used with credit/debit memo revenue recognition

Type F with reference to preceding document.

Rev. recognition can be determined via document header field BKPF-AWTYP

Posting from invoices & revenue recognition allowed only through VF44. Manual
posted accruals or adjustments shall have separate accounts maintained

India SAP CoE, Slide 32