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Revenue Recognition SAP

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  • SAP R/3 SD REVENUE RECOGNITION - BEST PRACTICE

    Knowledge Document

    Version 1.4

  • SAP AG File: RR_Best_Practice_Knowledge_Document_V1.doc Page: 2

    SAP R /3 SD REVENUE RECOGNIT ION -

    BEST PRACTICE

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    K N O W L E D G E D O C U M E N T (Based on R/3 Release 4.7)

    Release: Version 1.4 from of July 2005

    Issued by: SAP AG Neurottstrae 16 69190 Walldorf

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  • Revenue Recognition - Best Practice Table of Contents Knowledge Document

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    1 GENERAL RECOMMENDATIONS .........................................................................6

    2 DESCRIPTION OF BUSINESS AREA.....................................................................8

    2.1 The available methods include:............................................................................................................... 8

    2.2 The trigger and impact of the methods are: .......................................................................................... 8

    2.3 Typical Core Business Processes using the methods are: ..................................................................... 8

    2.4 Business Process Specific Information ................................................................................................... 9

    3 IMPLEMENTING REVENUE RECOGNITION .......................................................10

    3.1 Getting started R/3 SD Revenue Recognition...................................................................................... 10 Required releases and support packages........................................................................................................... 10

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    Supported processes in revenue recognition...................................................................................................... 10 Starting with customizing.................................................................................................................................. 12

    3.1.1.1 Global informations ................................................................................................................... 12 3.1.1.2 Presteps...................................................................................................................................... 12

    Customizing FI accounts and their settings ....................................................................................................... 14 3.1.1.3 Unbilled receivable account and deferred revenue account....................................................... 14 3.1.1.4 Revenue account........................................................................................................................ 18

    SD-Customizing ................................................................................................................................................ 20 3.1.1.5 SD item-categories and their settings ........................................................................................ 20 3.1.1.6 Customizing revenue recognition type on item category level .................................................. 22 3.1.1.7 Customizing revenue recognition accrual start date .................................................................. 24 3.1.1.8 Account determination............................................................................................................... 25

    4 DESCRIPTION OF CORE BUSINESS PROCESSES ...........................................27

    4.1 Standard Revenue Recognition at time of billing................................................................................ 27 General Information .......................................................................................................................................... 27 Business steps overview and process description.............................................................................................. 28 Critical functions ............................................................................................................................................... 28 Variations of the process ................................................................................................................................... 28 Additional important information...................................................................................................................... 28

    4.2 Time based revenue recognition (A) .................................................................................................. 29 General Information .......................................................................................................................................... 29 Business steps overview and process description.............................................................................................. 29

    4.2.1.1 Process 2 time based with VF44 as first ................................................................................. 29 4.2.1.2 Process 3 time based with invoice as first .............................................................................. 30

    Critical functions ............................................................................................................................................... 31 Variations of the process ................................................................................................................................... 31 Additional important information...................................................................................................................... 31

    4.3 Service based revenue recognition (B)............................................................................................... 33 General Information .......................................................................................................................................... 33 Business steps overview and process description.............................................................................................. 33

    4.3.1.1 Process 4 service based with VF44 as first ............................................................................. 33 4.3.1.2 Process 5 service based with invoice as first .......................................................................... 34

    Critical functions ............................................................................................................................................... 35 Variations of the process ................................................................................................................................... 35 Additional important information...................................................................................................................... 36

    4.4 Service based revenue recognition (B) contract with call off........................................................... 37

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    General Information .......................................................................................................................................... 37 Business steps overview and process description.............................................................................................. 37

    4.4.1.1 Process 6 service based with VF44 as first ............................................................................. 37 4.4.1.2 Process 7 service based with invoice as first .......................................................................... 38

    Critical functions ............................................................................................................................................... 39 Variations of the process ................................................................................................................................... 39 Additional important information...................................................................................................................... 40

    4.5 Time based and billing related revenue recognition (D) .................................................................. 41 General Information .......................................................................................................................................... 41 Business steps overview and process description.............................................................................................. 41 Critical functions ............................................................................................................................................... 42 Variations of the process ................................................................................................................................... 42 Additional important information...................................................................................................................... 42

    4.6 Time based revenue recognition in credit/debit memo processing with a credit/debit memo request (A) 43

    General Information .......................................................................................................................................... 43 Business steps overview and process description.............................................................................................. 43

    4.6.1.1 Process 9 time based with VF44 as first ................................................................................ 44

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    4.6.1.2 Process 10 time based with invoice as first............................................................................ 45 Critical functions ............................................................................................................................................... 46 Variations of the process ................................................................................................................................... 46 Additional important information...................................................................................................................... 46

    4.7 Credit/debit memo revenue recognition with reference to preceding document (F)..................... 47 General Information .......................................................................................................................................... 47 Business steps overview and process description.............................................................................................. 48 Critical functions ............................................................................................................................................... 49 Variations of the process ................................................................................................................................... 49 Additional important information...................................................................................................................... 49

    4.8 Time based or service based revenue recognition recognition in credit/debit memo processing without a credit/debit memo request (A or B) .............................................................................................. 50

    General Information .......................................................................................................................................... 50 Business steps overview and process description.............................................................................................. 51 Critical functions ............................................................................................................................................... 51 Variations of the process ................................................................................................................................... 51 Additional important information...................................................................................................................... 52

    4.9 Service based revenue recognition in return processing with reference to an order (B) .............. 53 General Information .......................................................................................................................................... 53 Business steps overview and process description.............................................................................................. 53

    4.9.1.1 Process 13 service based return processing with reference to an order with VF44 as first.... 54 4.9.1.2 Process 14 service based return processing with reference to an order with invoice as first .. 55

    Critical functions ............................................................................................................................................... 56 Variations of the process ................................................................................................................................... 56 Additional important information...................................................................................................................... 56

    4.10 Service based revenue recognition in return processing with reference to a contract and call off order (B) ............................................................................................................................................................. 57

    General Information .......................................................................................................................................... 57 Business steps overview and process description.............................................................................................. 57 Critical functions ............................................................................................................................................... 58 Variations of the process ................................................................................................................................... 58 Additional important information...................................................................................................................... 59

    5 PROCESSES CURRENTLY NOT SUPPORTED ..................................................60

    6 MONITORING OF THE REVENUE RECOGNITION DATA...................................61

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    6.1 Monitoring aspects................................................................................................................................. 61

    6.2 FI-Monitoring......................................................................................................................................... 62 Check Account Balances ................................................................................................................................... 62 Reconcile FI and SD Values.............................................................................................................................. 64 Automatic Clearing of Accrual Accounts.......................................................................................................... 65

    6.3 SD-Monitoring with VF45..................................................................................................................... 67 VF45 Overview ................................................................................................................................................. 67 Selection criterias of VF45................................................................................................................................ 68

    6.4 SD-Monitoring with VF47..................................................................................................................... 70 VF47 Overview ................................................................................................................................................. 70 VF47 selection criteria ...................................................................................................................................... 70 VF47 Error categories ....................................................................................................................................... 75

    6.4.1.1 Account determination errors: ................................................................................................... 75 6.4.1.2 Inconsistencies between VBREVK / VBREVE/ VBREVR ...................................................... 75 6.4.1.3 Incorrect values / balances......................................................................................................... 75 6.4.1.4 status problem............................................................................................................................ 75 6.4.1.5 Currency problem ...................................................................................................................... 76

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    6.4.1.6 Lock problem............................................................................................................................. 76 6.4.1.7 Assignment problem.................................................................................................................. 76

    6.5 SD Monitoring with VF48 ..................................................................................................................... 78 VF48 Overview ................................................................................................................................................. 78 VF48 selection parameter.................................................................................................................................. 78 Results of VF48................................................................................................................................................. 78

    6.5.1.1 Upper part of the screen - Balances ........................................................................................... 80 6.5.1.2 Lower part of the screen - VBREVx rows (SD tables).............................................................. 81 6.5.1.3 Additional function.................................................................................................................... 82

    7 FUNCTIONAL ENHANCEMENTS.........................................................................83

    8 RESTRICTIONS FROM SD SIDE..........................................................................85

    8.1 General restrictions ............................................................................................................................... 85

    8.2 Account restrictions ............................................................................................................................... 85

    8.3 Cost restrictions ..................................................................................................................................... 85

    8.4 Adjustment restrictions ......................................................................................................................... 86

    8.5 Restrictions for specific processes......................................................................................................... 88

    9 OTHER RESTRICTIONS .......................................................................................89

    9.1 REVREC and NON-REVREC Postings .............................................................................................. 89

    9.2 Translation of foreign currencies ......................................................................................................... 89

    10 IMPORTANT TO DOS.......................................................................................90

    11 IMPORTANT NOTES .........................................................................................91

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  • Revenue Recognition - Best Practice 1 General recommendations Knowledge Document

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    1 General recommendations

    In order to comply with the latest bookkeeping principles and current regulations, like Generally Accepted Accounting Principles (US-GAAP), International Accounting Standards (IAS) / Financial Reporting Standards (FRS), as well as the Sarbanes-Oxley Act, SAP provides some general recommendations and best practices for customers using SAP R/3 revenue recognition in the Sales and Distribution component (SD). In the whole document revenue recognition is set for SAP R/3 SD revenue recognition. If customers want to use the revenue recognition functionality in their productive

    environment, the implementation must be subject to a pre go-live assessment to avoid a negative impact on the financial statement. This assessment is completely free of charge. In other words, the customer will have to ask explicit permission from SAP in order to use this functionality (detail information provided by note 768561 and 779366).

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    As revenue recognition provides a data stream into the financial system, the setup of the function is not only an SD task. FI consultants with experience in the area of Balance Sheet and P&L customizing have to setup the account assignment using SAP Best Practices and need to review the processes that are customized in the SD area.

    Furthermore, the entire revenue recognition process should be approved by the responsible Head of Accounting and, if necessary, reviewed by the external auditor of the company.

    Revenue recognition needs to be implemented by SAP-certified SD- and FI-Consultants.

    To make sure that compliance with the latest requirements is possible, always implement the latest versions of the SD module, especially the latest notes on revenue recognition.

    Also, SAP always recommends the application of the latest support package. Because of the nature of the revenue recognition function, it is necessary to

    monitor continuously (at a minimum monthly) the results by using the transaction VF45 and VF48, which delivers a process view of SD and FI and also by using transaction VF47, which provides a more technical view.

    To implement revenue recognition in already existing processes (transfers of old data) a detailed concept creation is necessary. For this request SAP offers consulting, which is chargeable.

    Program modifications in a revenue recognition relevant process are discouraged because they may have unexpected effects and may result in an incorrect data stream for FI. Any modifications made must be very closely monitored to prevent any negative impacts to the revenue recognition process. Additionally modifications have to be reviewed whether they are still in line with legal finance guidelines and regulations.

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    If the revenue recognition functionality is activated once in the productive system landscape, a deactivation has to be declined due to the direct impact to the accounting and the danger of data inconsistencies.

    Always get the latest version of the Revenue Recognition Best Practices Guide. The link can be found in note 779365.

    As IS-media solution is used, there is a Revenue Recognition Best Practices Guide available for this industry solution.

    The comments in these documents are binding for all customers using the SAP R/3 revenue recognition functionality and the outlined recommendations have to be implemented.

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  • Revenue Recognition - Best Practice 2 Description of Business Area Knowledge Document

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    2 Description of Business Area

    Many companies require that revenues are posted according to a time period. This means for example, that the revenues must be realized in the posting period, in which the service was carried out, and not in the posting period, in which the billing document was set up. The revenue recognition function in the SAP R/3 system helps you to fulfil these requirements and separates the revenue recognition process from the billing process. The R/3 system offers a flexible solution to companies using various methods of revenue recognition.

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    2.1 The available methods include:

    Revenue recognition at the point of billing (standard method) Time-related revenue recognition (the revenues are realized between specific set

    dates in equal proportions) Service-related revenue recognition (the revenues are realized on the basis of a

    specific event, e.g. the goods issue for a delivery) Credit/Debit memo request with reference to preceding document Service based revenue recognition, billing related (only for IS-M solution)

    2.2 The trigger and impact of the methods are:

    Revenue recognition is set up and initialized by the Sales and Distribution (SD) processes and therefore the revenue recognition method is assigned to the item category in the customizing of the SD module.

    Revenue recognition impacts the Financial Accounting by the account postings and therefore two additional accounts (balance sheet accounts) have to be created in the FI module. The accounts are: deferred revenue account and unbilled receivable account. Detailed information are provided by note 777996.

    2.3 Typical Core Business Processes using the methods are:

    Time based revenue recognition e.g. for rental contracts valid for a long time with a periodic billing plan.

    Service based revenue recognition e.g. a service contract with a related call off order, where services are included and a partial billing plan is assigned.

    Service based revenue recognition e.g. a sales order is delivered in a totally another time period than the invoice is created and released.

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  • Revenue Recognition - Best Practice 2 Description of Business Area Knowledge Document

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    Time based and billing related revenue recognition e.g. the invoicing has to be done before revenues may be realized.

    This document mainly deals with the non-standard revenue recognition since only for these the special revenue recognition functionality is relevant. Further in this document the term revenue recognition refers to the use of a revenue recognition method other than the standard revenue recognition.

    2.4 Business Process Specific Information

    The revenue recognition process is included in standard SD processes and is used in most cases with the billing plan functionality.

    Revenues arent posted to the G/L account when releasing the invoice to accounting.

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    ed. With the revenue recognition run (VF44) FI documents are created and the

    revenues will be realized. This is possible after the process is initialized (depending on the revenue recognition method).

    For a background run of VF44 report ZZVF44HN (note 377318) is available. (valid for < 46C HP 49 and 470 < HP 23)

    With the cancellation of the revenue recognition (VF46) the revenue recognition posting can be reversed, e.g. if revenues have been realized in error. The revenue recognition cancellation is not a real cancellation in the sense of a reverse posting. The balances on the accounts at the creation date of the cancellation are used as a basis.

    A function of revenue recognition is the grouping and monitoring of revenues in two additional general ledger accounts, which are:

    o unbilled receivables account (U/R account) o deferred revenues account (D/R account)

    You can see in these accounts whether revenue has been realized, but not yet taken into account in the invoice, or have been taken into account in the invoice, but not yet realized.

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  • Revenue Recognition - Best Practice 3 Implementing Revenue Recognition Knowledge Document

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    3 Implementing Revenue Recognition

    3.1 Getting started R/3 SD Revenue Recognition

    Required releases and support packages

    When you want to start with revenue recognition, the very first step to do is, look at your system-status!

    Dont start implementing or customizing revenue recognition, when you dont have the latest support package for your SAP-release.

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    Recommended releases and support packages are (as for May 2005): 46C SP49, additional notes from note 813850

    470 SP23, additional notes from note 813850

    Supported processes in revenue recognition

    Before starting with the implementation of revenue recognition functionality, it is essential to know, which processes are supported by SAP-functionality. The supported processes and functions are described in the document Best Practice for Revenue Recognition. This document contains detailed information about:

    Necessary Customizing settings Supported processes and scenarios Limitations and restrictions placed on the solutions offered Recommendations for monitoring the revenue recognition process A guide for implementation

    You will find a link to the latest version of this document in SAP-note 779365. Also look at the prerequisits for revenue recognition mentioned in SAP-note 782758.

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  • Revenue Recognition - Best Practice 3 Implementing Revenue Recognition Knowledge Document

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    In order to comply with the latest accounting principles and current financial regulations, like 'Generally Accepted Accounting Principles' (US-GAAP), 'International Accounting Standards' (IAS) / 'Financial Reporting Standards' (FRS), as well as the 'Sarbanes-Oxley Act', SAP provides some general recommendations for customers using Revenue Recognition in the Sales and Distribution component (SD). Some information from this note:

    the setup of the function is not only an SD task, but also a FI task Revenue Recognition needs to be implemented by SAP-certified SD-and

    FI consultants. Program modifications in a revenue recognition relevant process are

    discouraged because they may have unexpected effects and may result in an incorrect data stream for FI.

    It is necessary to monitor the Revenue Recognition function monthly, at a minimum, the results by using the transactions VF47 which provides a more technical view as VF45 which delivers a transaction view of SD and FI.

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  • Revenue Recognition - Best Practice 3 Implementing Revenue Recognition Knowledge Document

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    Starting with customizing

    3.1.1.1 Global informations

    When you try to start customizing revenue recognition, you will find, that customizing item for revenue recognition cannot be entered or changed. According to SAP-note 820417 the path on IMG Sales and Distribution -> Basic Functions -> Account Assignment/Costing -> Revenue Recognition -> Set Revenue Recognition For Item Categories is not open for any entering or changing of customizing data. Usage of R/3 SD Revenue Recognition functionality is under a special activation by SAP (see also SAP-notes 779366 and 605665). By releasing the SD Revenue Recognition function separately, we want to ensure that customers who intend to use this function are aware of and agree to the necessary determining factors and prerequisites.

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    Despite this special release process, customers are still responsible for setting up, using and operating the R/3 SD Revenue Recognition function. 3.1.1.2 Presteps

    For the setup of revenue recognition processes you have to customize 1) FI accounts and their settings 2) SD item-categories and their settings 3) revenue recognition type on item category level 4) account determination

    The following accounts are needed for the representation of the revenue re-cognition process: Revenue account (recognized revenues) Receivables account (customer account) Revenues to be deferred (deferred revenue account or D/R account) Unbilled receivables (unbilled receivables account or U/R account)

    For the revenue account and receivables account you can use the accounts that you used before in the other standard processes. The account of the revenues to be deferred (in the following called D/R account) and the account of the unbilled receivables (in the following called U/R account) have to be created as new accounts. The U/R account must be different from the D/R account, i.e. different account

    numbers must be used. Only this way the posting process of the revenue recognition can be monitored.

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    An account number is never a revenue account that is used for the accruals accounts (U/R and D/R account).

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    Customizing FI accounts and their settings

    3.1.1.3 Unbilled receivable account and deferred revenue account

    For the unbilled receivable account and for the deferred revenue account the following settings in FI must be maintained: Transaction : FS00 Path: Financial Accounting -> General Ledger Accounting -> G/L

    Accounts -> Master Records -> G/L Account Creation and Processing -> Edit G/L Account (Individual Processing) -> Edit G/L Account Centrally

    On Tab Type/Description field Balance sheet account (SKA1-XBILK) must be set to YES. This indicates that the G/L account is managed as a balance sheet account. Unbilled receivable and deferred revenue account have to be balance sheet accounts, because only these accounts and their balances are carried forward at fiscal year-end.

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    On Tab Control data the following fields have to be fill out:

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    Field Only balances in local currency (SKB1-XSALH) to no *1) Field Tax category (SKB1-MWSKZ) with + (Only output tax allowed) or * (All tax types allowed) *2) Field Posting without tax allowed (SKB1-XMVNO) to yes *3) Field Open item management (SKB1-XOPVM) to yes *4) Field Line item display (SKB1-XKRES) to yes *5)

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    *1) With no it Indicates that balances are updated not only in local currency when users post items to this account. So the revenue recognition processes are able to post in different currencies.

    *2) Possible entries:

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    Here just + or * are used.

    *3) With yes it indicates that the account can still be posted, even if a tax code has not been entered. In revenue recognition it should be possible to post both, taxable and non-taxable items, to an account. For example, you would usually set up a separate tax code for the non-taxable transactions. When taxes are entered using jurisdiction codes, however, this separate tax code cannot be used since jurisdiction codes cannot be specified for foreign customers. In this case, you allow users to post items without tax codes in the corresponding expense and revenue accounts.

    *4) With yes it determines that open items are managed for this account. Items posted to accounts managed on an open item basis are marked as open or cleared. The balance of these accounts is always equal to the balance of the open items. Set up accounts with open item management if offsetting entries are to be assigned to the postings made to these accounts. Postings to these accounts represent incomplete processes or process-steps.

    Be careful when using open item management, because in this case you cannot use document summarization!

    Userexit xxxxxxxxx must be used to set the assignment in the SD invoices. *5) With yes here it indicates that line item display is possible in this account. For

    line item display, the system stores an entry per line item in an index table which contains the link between line item and account.

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    On Tab Create/bank/interest there is one entry necessary:

    Field Post automatically (SKB1-INTB) with yes This mark indicates that this account can only be posted to by the system using account determination tables. No manual posting is allowed, because manual posting will never change the revenue recognition tables.

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    3.1.1.4 Revenue account

    For the revenue account the following settings must be maintained: On Tab Type/description

    Set field P&L statement acct (SKA1-XPLACCT) to yes. For revenue accounts you need accounts with type P&L.

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    On Tab Control data maintain the following fields:

    Field Posting without tax allowed (SKB1-XMVNO) to yes Do not select field Only balances in local crcy (SKB1-XSALH). Always NO

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    SD-Customizing

    3.1.1.5 SD item-categories and their settings

    Normally when you are working with revenue recognition, you are working with SD contracts or customer orders, deliveries and invoices. So you have to customize these documents. On sales document header level you have to do just the normal customizing for the sales document types. No additional customizing is necessary for revenue recognition. On sales item level, you have to do some customizing, when using revenue recognition. When you want to use a billing plan, you have to customize this in your item categories. Path: Sales and Distribution -> Sales -> Sales Documents -> Sales Document Item -> Define Item Categories

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    Field relev. for billing:

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    Use I for the document item category you want to use with a billing plan. Field billing plan type:

    For a billing plan type, choose one of the above types or create your own billing plan type and the use this one for the item categories. You can create your own billing plan type in customizing via path Sales and Distribution -> Billing -> Billing Plan -> Define

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    Billing Plan Types or transaction OVBI for periodic billing or transaction OVBO for milestone billing. 3.1.1.6 Customizing revenue recognition type on item category level

    You will find this part of customizing via the following path: Sales and Distribution -> Basic Functions -> Account assignment / Costing -> Revenue Recognition Or via transaction: OVEP. Set Revenue Recognition For Item Categories

    Possible entries for the field Rev. recognition are:

    How to use this revenue recognition category? Referring to chapter 3 in this document, where the processes are described, the usage of this category is explained.

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    Here a short summary: Category blank : see chapter 4.1 used with standard revenue recognition

    at time of billing Category A: see chapter 4.2 used with timebased revenue

    recognition see chapter 4.6 used with credit/debit memo timebased

    revenue recognition with memo request see chapter 4.8 used with credit/debit memo timebased

    revenue recognition without memo request Category B: see chapter 4.3 used with servicebased revenue

    recognition see chapter 4.4 used with servicebased revenue

    recognition in contracts with calloffs

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    ed. see chapter 4.8 used with credit/debit memo timebased

    revenue recognition without memo request see chapter 4.9 used with servicebased revenue

    recognition in return process with reference to an order see chapter 4.10 used with servicebased revenue

    recognition in return process with reference to a contract and calloff-order

    Category D: see chapter 4.5 used with timebased and billing related revenue recognition

    Category E: is relevant for customers who use the Industry Solution Media. Details are described in the Best Practice IS-M

    Category F: see chapter 4.7 used with credit/debit memo revenue recognition with reference to a preceding document

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    3.1.1.7 Customizing revenue recognition accrual start date

    Selects the start date for the accrual period and is relevant for the revenue recognition type A. The accrual start date determines the start of the period in which revenues should be recognized.

    v

    You have the following options:

    Proposal based on contract start date

    Revenue recognition proposes the start date of the sales contract for the item as the accrual start date.

    Proposal based on billing plan start date Revenue recognition proposes one of the following dates as the accrual start date:

    In a milestone billing plan, the billing date of the first milestone In a periodic billing plan, the earlier of the following dates:

    Billing plan start date Start date of first settlement period

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    3.1.1.8 Account determination

    Next customizing step is the account determination. You will find this item via path Sales and Distribution -> Basic Functions -> Account Assignment/Costing -> Revenue Recognition -> Maintain Account Determination or transaction VKOA.

    In the SD module, both the revenue account and the account for deferred revenue amounts must be maintained in the revenue account determination. This occurs in customizing transaction according the following example:

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    Assign account for unbilled receivables: In customizing transaction OVUR, the account for unbilled receivables (U/R account) is maintained depending on the reconciliation account and the associated chart of accounts. There are two possibilities for the determination of the reconciliation account:

    1) The reconciliation account is taken from the customer master record of the payer. 2) For the billing type assigned to the sales document, the system checks

    whether the reconciliation account determination is active. If this is the case, the system performs a reconciliation account determination within the revenue recognition and uses the so determined reconciliation account. (note : 644296)

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    4 Description of Core Business Processes

    The illustration of typical core business processes show an overview of the suggestive process flow based on the selected revenue recognition method. Within the process flow the separate steps can be done in reverse order, especially the chronological order of the creation/releasing of the invoice and the posting of the revenues is variable. For each core business processes using a chosen revenue recognition method two processes are described to display the different account postings depending on the sequence. There is no relation to values done and there is no partial delivery, partial invoicing of partial revenue recognition included. The description is simplified and the process flow productive landscapes are much more complex.

    4.1 Standard Revenue Recognition at time of billing

    General Information

    Process 1 is the R/3 standard method for revenue recognition consisting of revenue recognition at the time of billing.

    Companies use standard revenue recognition, if they want to post revenues in Financial Accounting, as soon as an invoice is released to accounting.

    No special revenue recognition functionality is used. Revenue recognition method = (blank).

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    Business steps overview and process description

    Will not be discussed further as this process is the standard billing process with the standard revenue recognition at the time of billing.

    Critical functions

    Nothing.

    Variations of the process

    Nothing.

    Additional important information

    Nothing.

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    4.2 Time based revenue recognition (A)

    General Information

    Using time-related revenue recognition, it is possible to carry out recognition over a specific period of time. An example of this is revenue recognition for the length of a service or rental contract. The proportions for the periods are equal.

    Time-related revenue recognition can be used for single billing document items without billing plan functionality, with periodic billing plans and with milestone billing plans.

    Revenue recognition method = A. Process 2 characterizes that transaction VF44 is used before invoice.

    Process 3 demonstrates the process when the invoice is posted before transaction VF44.

    Business steps overview and process description

    4.2.1.1 Process 2 time based with VF44 as first

    As a first step in the process the sales contract is created, which can contain a billing plan. This sales document contains the line items, which have to be billed as well as

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    the relevant conditions. The saving of this document triggers the creation of control lines (VBREVK) and the revenue lines (VBREVE) for each period. With time-related revenue recognition the recognition is carried out between a specific start and end date in equal parts. The start and end dates are determined on item level in the sales document. Here the billing plan dates or the contract data dates will be used. The number of periods between these dates is determined using the financial calendar for the company code assigned to the document. According to the number of periods and the amount to be billed, the revenue lines are calculated. Since the revenue recognition is now initialized, it is possible to realize the revenue using transaction VF44. This triggers the update of the control lines with the realized value and the new balance and the update of the revenue lines. In FI an accounting document is automatically created, which posts on the reconciliation account unbilled revenues and on the revenue account.

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    When the invoice is created and released for accounting, another accounting document is created, which balances (or reduces) the reconciliation account and posts on the receivables account. The revenue recognition tables are also updated by this step. A new reference line is created, containing information of the invoice, and the control lines are updated as well. If only a partial billing took place or was realized, the steps following the order creation may be repeated for further periods until the sales document is completed. In such cases another revenue account (deferred account) can be posted. 4.2.1.2 Process 3 time based with invoice as first

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    As a first step in the process the sales contract is created, which can contain a billing plan. This sales document contains the line items, which have to be billed as well as the relevant conditions. The saving of this document triggers the creation of control lines (VBREVK) and the revenue lines (VBREVE) for each period. With time-related revenue recognition the recognition is carried out between a specific start and end date in equal parts. The start and end dates are determined on item level in the sales document. Here the billing plan dates or the contract data dates will be used. The number of periods between these dates is determined using the financial calendar for the company code assigned to the document. According to the number of periods and the amount to be billed, the revenue lines are calculated. When the invoice is first created and released to accounting, an accounting document is created. It posts to a different reconciliation account called deferred revenues and to the receivables account. This event also triggers the update of the control lines with the realized value and the new balance and creates the reference lines. Now transaction VF44 runs. This triggers the update of the control lines and the update of the revenue lines. Also in FI, an accounting document is automatically created, which posts on the reconciliation account deferred revenues and on the revenue account. If only a partial billing took place or was realized, the steps following the order creation may be repeated for further periods until the sales document is completed. In such cases another revenue account (unbilled receivable account) can be posted.

    Critical functions

    A contract will be used without contract data and without billing plan. As a consequence no VBREVE can be created, as there is no start and no end date.

    A condition is added manually in the invoice, not in the contract/order, and the new condition is using separate accounts. As a consequence the posted values from VF44 would differ from the values posted by the billing document. The invoice cannot be released to accounting, the error message F5 702 would appear. Note 496721 explain the solution: the added condition has to be classified in a way that it is not relevant for revenue recognition.

    Instead of a contract, a sales order can be used as sales document in this process, which then replaces the contract. In this case a billing plan has to be used, if the sales order contains no contract data. This triggers the same follow on steps.

    Additional steps of the process can include the delivery of items and posting goods issue which do not affect the revenue recognition process.

    Variations of the process

    Nothing.

    Additional important information

    Nothing.

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    4.3 Service based revenue recognition (B)

    General Information

    Using service-related revenue recognition, you can carry out recognition on the basis of a specific event. An example of this is revenue recognition for a service contract, where services are included.

    Revenue recognition method = B. Process 4 demonstrates the process, when transaction VF44 is run before

    invoicing. Process 5 demonstrates the process, when the invoice is posted before transaction VF44.

    Business steps overview and process description

    4.3.1.1 Process 4 service based with VF44 as first

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    As a first step in the process the sales order or sales contract is created. This sales document contains the line items, which have to be billed as well as the relevant conditions. The saving of this document triggers the creation of the control lines (VBREVK) only. No revenue lines are created at this stage. The next process step consists of the creation of the delivery with reference to the order/contract, the line items are copied into this document. The goods are picked either with lean warehouse management or with full warehouse management including transfer orders. When the goods have left the company stock, goods issue is posted. This triggers the creation of the revenue lines (VBREVE) in service based revenue recognition according to the document data. It is now possible to realize the revenue using transaction VF44. This triggers the update of the control lines with the realized value, a new balance, and the update of the revenue lines. In FI an accounting document is automatically created which posts to the reconciliation account unbilled receivables and to the revenue account. When the invoice is created and released to accounting, another accounting document is created which balances (or reduces) the reconciliation account and posts to the receivables account. The revenue recognition tables are also updated by this step. A new reference line is created containing information from the invoice, the control lines will also be updated. 4.3.1.2 Process 5 service based with invoice as first

    As a first step in the process the sales order or sales contract is created. This sales document contains the line items, which have to be billed, as well as the relevant

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    conditions. The saving of this document triggers the creation of the control lines (VBREVK) only. No revenue lines are created at this stage. The next process step consists of the creation of the delivery with reference to the order/contract, the line items are copied into this document. The goods are picked either with lean warehouse management or with full warehouse management including transfer orders. When the goods have left the company stock, goods issue is posted. This triggers the creation of the revenue lines (VBREVE) in service based revenue recognition according to the document data. Now the invoice is created and released to accounting. An accounting document is created, which posts to the reconciliation account deferred revenue and to the receivables account. The revenue recognition tables are updated by this step. A new reference line is created containing information from the invoice, the control lines will also be updated. After this step transaction VF44 is used. This triggers the update of the control lines and the update of the revenue lines. In FI an accounting document is automatically created, which posts to the reconciliation account deferred revenue and to the revenue account.

    Critical functions

    If the order item is relevant for delivery-related-invoicing (FKREL = A) and there is a under/over delivery (there is more ordered than delivered/ there is more delivered than ordered) the value, which is delivered and invoiced, has to be considered as revenues. It is necessary to adjust the quantity of the order according to the delivery quantity.

    If the order item is relevant for order-related-invoicing (FKREL = B or I) and there is a under/over delivery (there is more invoiced than delivered/ there is more delivered than invoiced) the value, which is ordered and invoiced, has to be considered as revenues. It is necessary to adjust the revenues and to complete the order process. This is done by the system as soon as a reason for rejection is set.

    If there are changes of condition values or time data in the sales order, an adjustment is necessary for the revenues. The revenue lines have to be updated. The adjustment is only done, if there wasnt an invoice created and if there was a complete delivery (vbup-lfsta = C). The adjustments in case of under/over delivery, price or time changes as described in order processing, are not possible for contracts using performance based revenue recognition. The adjustment process for contracts is not supported for < 46C HP 48 and 470 < HP 22)

    Variations of the process

    Nothing.

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    Nothing.

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    4.4 Service based revenue recognition (B) contract with call off

    General Information

    Using service-related revenue recognition you can carry out recognition on the basis of a specific event. An example of this is revenue recognition for a contract with a call off order while the contract item is invoiced and the linked call off order item is delivered.

    Revenue recognition method = B for the contract and call off order. Process 6 demonstrates the process, when transaction VF44 is run before

    invoicing. Process 7 demonstrates the process, when the invoice is posted before transaction VF44.

    Business steps overview and process description

    4.4.1.1 Process 6 service based with VF44 as first

    The first step in this process is the creation of the sales contract, which may contain a billing plan. This contract creation generates control lines in table VBREVK. In the

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    second step a call off order is generated with reference to the contract and a delivery may have been created with reference to the call off order. The next process step is that the goods are picked either with lean warehouse management or with full warehouse management including transfer orders. When the goods have left the company stock, goods issue will be posted. This triggers the creation of the revenue lines (VBREVE). In the subsequent step, when transaction VF44 is run, an update of the control and revenue lines is generated. Additionally an accounting document is automatically created in FI, which posts to the unbilled account. After the invoice is created with reference to the contract and released to accounting, the reference lines will be created and the control lines will be updated. The created FI document posts to the unbilled account. 4.4.1.2 Process 7 service based with invoice as first

    The first step in this process is the creation of the sales contract, which may contain a billing plan. This contract creation generates control lines in table VBREVK. In a second step a call off order is generated with reference to the contract and a delivery may have been created with reference to the call off order. The next process step is that the goods are picked either with lean warehouse management or with full warehouse management including transfer orders. When the

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    goods have left the company stock, goods issue is posted. This triggers the creation of the revenue lines (VBREVE). In the subsequent step an invoice is created and released to accounting, reference lines (VBREVR) will be created and control lines (VBREVK) will be updated. Additionally an accounting document is automatically created in FI, which posts to the deferred account. While transaction VF44 runs in the next step, an update of the control and revenue lines is generated. Additionally an accounting document is automatically created in FI, which posts to the deferred account.

    Critical functions

    If terms are added manually in the call-off order, there must be a link to a contract item otherwise the call-off order items are handled separately.

    Changes of the revenue recognition accounts (D/R account / U/R account) are not supported.

    If there is an over/under delivery of the call-off order items, the process should be completed. There is no clearing of the balance on the clearing account. The difference between billed and recognized value has to be posted by a credit memo. The creation of a credit memo in reference to a credit memo request doesnt lead to the clearing of the balance and therefore the credit memo must be created in reference to the billing document.

    In case of changes of condition values or time data in the contract / call-off order an adjustment for the revenue is only possible, if there is no invoice created. Before an invoice is created, the price and time changes have to be done correspondingly in the contract item and the related call-off order item.

    Variations of the process

    In accordance with the above described process, where the invoice is related to the contract and the call off order is to be delivered, two other scenarios exist: The call off order will be invoiced and delivered:

    When the call off order is created with reference to the contract, the saving of the call off order creates control lines (VBREVK). After the related delivery has posted the goods issue, revenue lines (VBREVE) are created. Important remark: The invoice has to be created in reference to the call off order (order-related invoicing) and NOT in reference to the delivery (delivery-related invoicing).

    The contract will be invoiced and the call off order will not be delivered: While the contract is created, control lines are created in table VBREVK and during saving of the call off order revenue lines are generated in table VBREVE.

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    Additional important information

    In order to implement the three scenarios, the following customizing settings must be configured in the sales document types: The contract will be invoiced and the call off order will be delivered:

    The billing relevance of the contract item category should be B or I, while the billing relevance of the call off order item category should be . The revenue recognition relevance of the contract and the call off order item categories should be set to B.

    The call of order will be invoiced and delivered: The item category of the contract should be customized with revenue recognition relevance , the item category of the call off order with B. The billing relevance of the contract item category should be , while the billing relevance of the call off order item category should be B.

    The contract will be invoiced and the call off order will not be delivered: The billing relevance of the contract item category should be B or I, while the billing relevance of the call off order item category should be . The revenue recognition relevance of the contract and the call off order item categories should be set to B.

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    4.5 Time based and billing related revenue recognition (D)

    General Information

    Using time based and billing related revenue recognition, you can carry out recognition on the basis of an invoice over a specific period of time. An example of this is revenue recognition for the length of a service or rental contract after the invoice is created and released. The proportions for the periods are equal.

    Revenue recognition method = D. Process 8 will be initialized at the point in time when the billing document is

    released to accounting. Afterwards transaction VF44 is run.

    Business steps overview and process description

    The contract or the sales order will be created. Then the invoice will be created. After the invoice was released to accounting all the Revenue Recognition tables are

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    filled. The invoice posts to the deferred account and to the receivable account. The reference lines, the control lines and the revenue lines are now available for the Revenue Recognition Process. It is now possible to realize the revenue using transaction VF44. This triggers the update of the control lines with the realized value, the new balance and the update of the revenue lines. In FI, an accounting document is automatically created which posts to the reconciliation account deferred revenues and on the revenue account.

    Critical functions

    Nothing.

    Variations of the process

    Additional steps of the process can include the delivery of items and post goods issue, which do not affect the revenue recognition process.

    Additional important information

    The cancellation of the invoice using transaction VF11 is starting its own revenue recognition process. The releasing of the invoice cancellation document triggers the creation of separate control, revenue and reference lines. The revenue recognition cancellation process has no reference to the original revenue recognition process.

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    4.6 Time based revenue recognition in credit/debit memo processing with a credit/debit memo request (A)

    General Information

    Using time-related revenue recognition in a credit/debit memo processing, it is possible to carry out recognition over a specific period of time. An example of this is revenue recognition for the length of a credit/debit memo request. The proportions for the periods are equal. The credit/debit memo request is created in reference to a contract, order or invoice.

    The credit/debit memo process with a credit/debit memo request sets up its own revenue recognition tables.

    The credit memo process has the opposite posting logic to the billing. The debit memo process has the same posting logic to the billing, when posting to the reconciliation accounts.

    When creating and transferring a credit memo to accounting, the system checks, whether a balance exists on the deferred revenue (D/R) account, otherwise the posting is made to the unbilled receivables (U/R) account.

    Revenue recognition method = A. Process 9 demonstrates the credit memo processing, when transaction VF44 is

    ran before creation of the credit memo. Process 10 demonstrates the credit memo processing, when the credit memo is posted before transaction VF44 is ran.

    Business steps overview and process description

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    4.6.1.1 Process 9 time based with VF44 as first

    As a first step in the process the credit/debit memo request is created, which may contain a billing plan. This sales document contains the line items, which have to be billed as well as the relevant conditions. The saving of this document triggers the creation of control lines (VBREVK) and the revenue lines (VBREVE) for each period. With time-related revenue recognition the recognition is carried out between a specific start and end date in equal parts. The start and end dates are determined on item level in the sales document. Here the billing plan dates or the contract data dates will be used. The number of periods between these dates is determined using the financial calendar for the company code assigned to the document. The revenue lines are calculated based on the number of periods and the amount to be billed. Since the revenue recognition is now initialized, it is possible to realize the revenue using transaction VF44. This triggers the update of the control lines with the realized value, the new balance and the update of the revenue lines. In case of the credit memo process, an accounting document is automatically created, which posts to the accruals account deferred revenues and to the revenue account. In case of the debit memo process, an accounting document is automatically created, which posts to the accruals account unbilled receivables and to the revenue account. When the invoice is created and released to accounting, another accounting document is created, which balances (or reduces) the accruals account and posts to the receivables account. The revenue recognition tables are also updated by this step. A

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    new reference line is created, containing information from the invoice and the control lines are also updated. As a result, the opposite accruals accounts will be used for the credit memo process than are used for the debit memo process (invoices and debit memos have the same posting logic in accounting). 4.6.1.2 Process 10 time based with invoice as first

    As a first step in the process the credit/debit memo request is created, which can contain a billing plan. This sales document contains the line items, which have to be billed as well as the relevant conditions. The saving of this document triggers the creation of control lines (VBREVK) and the revenue lines (VBREVE) for each period. With time-related revenue recognition the recognition is carried out between a specific start and end date in equal parts. The start and end dates are determined on item level in the sales document. Here the billing plan dates or the contract data dates will be used. The number of periods between these dates is determined using the financial calendar for the company code assigned to the document. According to the number of periods and the amount to be billed, the revenue lines are calculated. When the invoice is created and released to accounting a different accruals account is posted together with the receivables account in the accounting documents. In case of the credit memo process the accruals account is called unbilled receivables account.

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    In case of the debit memo process the accruals account is called deferred revenues account. Then transaction VF44 runs. This triggers the update of the control lines with the realized value and the new balance and updates the revenue lines as well. As a result the opposite accruals accounts will be used for the credit memo process than for the debit memo process (invoices and debit memos have the same posting logic in accounting).

    Critical functions

    Nothing.

    Variations of the process

    The credit/debit memo processing with a credit/debit memo request can also be used as standalone process. It triggers the same steps as described previously.

    Additional important information

    Nothing.

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    4.7 Credit/debit memo revenue recognition with reference to preceding document (F)

    General Information

    Using credit/debit memo revenue recognition with reference to a preceding document, it is possible to carry out revenue recognition over a specific period of time equal to the original process. An example of this is revenue recognition for the length of a credit/debit memo request. The proportions for the periods are equal. The credit/debit memo request is created request in reference to a contract, order or invoice.

    No new revenue recognition tables will be created. The credit/debit memo process updates the revenue recognition tables of the preceding sales process.

    The revenue recognition method = F. It is implemented with note 447513 (SAPKH45B50, SAPKH46B38, SAPKH46C28).based revenue recognition type A For preceding sales documents with type B the note 839596 is relevant

    Process 11 consider only type A and will be initialized at the point in time, when the credit memo is released to accounting. Afterwards transaction VF44 is ran.

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    Business steps overview and process description

    The credit/debit memo process will be created with reference to a preceding sales document, and with revenue recognition type F it updates the revenue recognition tables of the preceding sales process. When this type is set for the credit/debit memo request, the system checks whether the reference document is relevant for 'time-related revenue recognition' (method 'A'). In this case the subsequent credit/debit memo generates reference lines (VBREVR) corresponding to the reference document. The posting to the accounts depends on whether there is a balance on the D/R or the U/R account (revenue recognition run is done and/or invoice is released to accounting in the original process). It is now possible to realize the corrected revenue using transaction VF44. This triggers the update of the control lines and the update of the revenue lines. In FI an accounting document is automatically created which posts to the accruals account of either the D/R or U/R and to the revenue account.

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    Critical functions

    Variations of the process

    Nothing.

    Additional important information

    Valid for 46C < SP49 and 470 < SP22: For updating the revenue recognition tables (VBREVK and VBREVE) of the preceding sales process (after the credit/debit memo was created), it is necessary to do a manual update using VA02/VA42 or to run report ZZ_SALES_DOC_CHANGE from note 385149. This update will not be executed automatically. In detail: In the VBREVK the field ACC_VALUE and in VBREVE the field WRBTR have to be updated. If revenues have already been posted, the system must enable a correction posting (adjustment line). Valid for 46C > SP 49 and 470 > SP22: For the update you can use the VF42 and report SDRRAV54 (description see note 780993)

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    4.8 Time based or service based revenue recognition recognition in credit/debit memo processing without a credit/debit memo request (A or B)

    General Information

    Using time-related revenue recognition in a credit/debit memo processing, it is possible to carry out recognition over a specific period of time equal to the original process. Using service-related revenue recognition in a credit/debit memo processing, it is possible to carry out recognition on the basis of a specific event equal to the original process. The credit/debit memo is created in reference to an invoice and there is no credit/debit memo request.

    No new revenue recognition tables will be created. The credit/debit memo process updates the revenue recognition tables of the preceding sales process.

    The revenue recognition relevance is transferred from the previous document. Revenue recognition method = A or B.

    Process 12 will be initialized at the point in time when the credit memo is released to accounting. Afterwards transaction VF44 is ran.

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    If a credit memo/debit memo is created and the reference document is the billing document, the credit memo/debit memo updates the revenue recognition tables of the preceding sales process. Therefore the posting to the accounts depends on whether there is a balance on the D/R or the U/R account (revenue recognition run is run and/or invoice is released to accounting).

    Critical functions

    Using revenue recognition method B in a credit/debit memo created with reference to the preceding invoice in a contract process is not supported. This does not apply to order processes.

    Variations of the process

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    When using Revenue recognition method = D, the credit memo/debit memo doesnt update the existing revenue recognition tables of the preceding sales process. The credit memo/debit memo is starting its own revenue recognition process. The release of the credit memo/debit memo document triggers the creation of separate control, revenue and reference lines.

    Additional important information

    For updating the revenue recognition tables (VBREVK and VBREVE) of the preceding order process (after the credit/debit memo was created) it is necessary to do a manual update using va02/va42 OR to run report ZZ_SALES_DOC_CHANGE from note 385149. This update will not be executed automatically. In detail: In the VBREVK the field ACC_VALUE and in the VBREVE the field WRBTR have to be updated. If revenues have already been posted, the system must enable a correction posting (adjustment line).

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    4.9 Service based revenue recognition in return processing with reference to an order (B)

    General Information

    Using service-related revenue recognition in a return processing can carry out recognition on the basis of a specific event equal to the original process. The return order is created in reference to an order after the order was delivered. The return order is invoiced with a credit memo.

    No new revenue recognition tables will be created. The return process updates the revenue recognition tables of the preceding sales process.

    Revenue recognition method = B. Process 13 demonstrates the process when transaction VF44 is ran before

    creation of the credit memo. Process 14 demonstrates the process when the credit memo is posted before transaction VF44 is run.

    Business steps overview and process description

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    4.9.1.1 Process 13 service based return processing with reference to an order with VF44 as first

    The return process will be created with reference to a preceding sales document and with revenue recognition type B. It updates the revenue recognition tables of the preceding sales process. As a first step the