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Deferred Revenue

Introduction

Iptor IP1 system caters for deferment of sales revenue and the associated cost of sales until the revenue is recognized. This ensures that the financial reports give a true indication of when the revenue was generated.

Deferred revenue formula definition file stores the product/customer definitions and links them to the deferred revenue formulas specified in the Deferred Revenue recognition file. Deferred revenue formulas can be defined to recognize the sales and cost of sales for the various product and customer definitions. The formulas can cater for the varying recognition rates over time relative to the invoice period, this is used for online product subscriptions.

Deferred revenue recognition can also be applied to different school/university semester periods as specified in the formula definitions. Semester start and end periods must be specified for the semester driven recognition. Within the semester period, if the invoice period falls before the actual semester, no recognition will occur until the actual start of the semester. If it falls within the actual semester then recognition will occur immediately.

Additional deferred revenue General ledger accounts for the current year and the next year allows recognition of the revenue and the cost to be posted to different General Ledger accounts for the current year and next year.

There are two methods of deferment; manual deferment and batch deferment. Batch deferment generation only defers invoices that were not manually deferred but processes (generates) revenue recognition for both manual or non-manual (auto) deferred invoices.

Process flow

Business rules setup

The following business rules have to be setup to handle Deferred revenue process. Business rules for Deferred revenue  process must be setup with support from Iptor IP1 consultants. It is critical to understand the setting of control files and how it works. Control files must be setup correctly for the system to operate as intended. Any changes to the control files setup should be addressed cautiously and in consultation with Iptor IP1 consultants.

The purpose of this setup is to assist Iptor IP1 consultants and customers setup appropriate business rules at a customer site for the specified process.

Note This document does not cover customised setup tasks of specific companies. Deviations from this setup should be covered by setup tasks written by individual companies.
View business rules
 Control file  Setup
TMSDS/DEF-SYS  Deferred revenue defaults Set the defaults for system/components, pack/details and future recognition for programs DSM423 and DSO426.
TMSDS/DR-JNLT  Deferred revenue journal type Setup the GL journal type for deferred revenue.
TMSDS/DSO427  Default export path for deferred revenue extracts Setup the default export path name for deferred revenue extraction.

Deferred revenue maintenance

It is your responsibility to ensure that you understand this procedure before performing the following tasks.

Note Deviations from this procedure should be covered by procedures written by your company. Before performing any tasks please ensure all the business rules are set-up accordingly. For detailed information on any of these tasks refer to the General Ledger User Guide.

Create/maintain Deferred revenue formula codes

Task Instructions
Add a Deferred revenue formula code.
  1. Expand menu Base > General Ledger > Other > Deferred Revenue >  Maintenance  and double-click GL Deferred R Formula Code Maint.  DSM424 Deferred Revenue Formula Maintenance panel appears.
  2. Click Add or use option change to add/maintain the formula code applicable for the deferred revenue formulas i.e. specify the duration of the code and the percentage rate for the duration.

Fields

Formula Code: Enter code and description to identify the new formula.

Months duration:  This is the number of months for which the formula percentage rate specified is effective.

% rate: Percentage rate at which revenue will  be recognised for the specified duration

Example 1            6= at 100%

Example 2             2   0.00 % (don’t start for 2 months)

4  at 50% (50% for next 4 months)

2  0.00% miss another 2 months

7  at 50% (50% for next 7 months)

Percentage must equal 100%.

Months prior semester: This is the number of months before the current semester start that is to be included in the current semester period. For example if the semester start month is 3 (March) and the months prior semester is 2 then the recognition for January and February will be in the current semester..

Semester start: These are semester start months and must be entered if the deferred revenue recognition is being driven by school semester. Up to 4 semesters can be used per year. The semester period for recognition starts from the semester start month less number of months prior semester.

Note  Deferred revenue formulas will use these formula codes to calculate the deferment/recognition.

 

Define Deferred revenue formulas

Task Instructions
Define the deferred revenue recognition formulas. Menu: Base>General Ledger>Other>Deferred Revenue>Maintenance>GL Deferred R Formula Maint. (DSM420).

  1. Deferred revenue formula is defined by company. Enter a valid company code for the formula definition and click OK.
  2. Click Add to add the new formula header details and click OK.
  3. Enter all the applicable criteria for the formula. See Deferred Revenue Formula Maintenance for  additional details of this process.
Note These formulas will identify which invoices will be eligible for recognition.

Create/maintain Deferred revenue GL accounts

Task Instructions
Maintain the deferred and recognition GL accounts. Menu: Base>General Ledger>Other>Deferred Revenue>Maintenance>GL Deferred R Account Maint. 

  1. Enter a valid company code for the Deferred revenue GL accounts and click OK.
  2. Click Add to add the Deferred revenue GL accounts.
  3. Enter all the applicable data for the GL accounts. For details of the data required, see Deferred revenue GL Account Maintenance.
  4. Click OK and enter any applicable selection criteria for the GL accounts.

Work with Deferred revenue

Task Instructions
Display deferred sales/cost of sales and balance amount information or maintain deferment. Menu: Base>General Ledger>Other>Deferred Revenue>Maintenance>Work with GL Deferred Revenue. (DSM423).

This program also allows you to defer, change or delete deferred sales/cost. Refer to Work with Deferred Revenue for details of this process.

Deferred revenue processing

Task Instructions
Generate Deferred revenue Menu: Base>General Ledger>Other>Deferred Revenue>Processing>Generate GL Deferred Revenue. (DSO426).

This program picks up deferment transactions with the selection period range and generates batch deferment.

If deferred revenue formula definition exists for a subscription item then the formula is used to recognise the revenue, unless control file TMSDS/DEF-SYS is setup to overwrite this; i.e. if Subscription rule = 1 in TMSDS/DEF-SYS, then the deferred revenue recognition will be based on subscription term and recognised evenly over the subscription term.

Note TMSDS/DEF-SYS can be setup to have deferred revenue formula only applicable for normal invoicing, i.e. have all subscription invoices revenue recognised over the subscription term.
Generate Deferred revenue GL journals Menu: Base>General Ledger>Other>Deferred Revenue>Processing>Generate GL Journals. (DSO425).

This program generates GL journal for deferred revenue. It reads the “unposted” deferred revenue records (both for deferment and recognition) and consolidates the values by GL account. It writes the  journals in the general ledger interface file (GLIF00P) ready for posting to GL in the GL EOD run.
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