Set up revenue and expense deferrals
Revenue and Expense deferrals are implemented in an organization Billing schedule to distribute expenses over a certain period. In other words, you can use them together with recurring contract billing. Deferrals are often seen in telecom and technology industries as they move to subscription and up-front billing where organizations pay long term, quarterly, or annually. Additionally, membership organizations are using deferrals as they shift to annual, semi-annual, or quarterly memberships. Revenue and expense deferrals will allow you to manage your revenue in accordance with ASC 606 and IFRS 15 accounting standards. It will help reduce your organization's mistakes and save time by implementing an automatic process. It will also allow your customer to view real-time reporting and critical information surrounding monthly recurring revenue.
Note
You can select a corresponding time period for your deferral schedule. Those options include Monthly, Quarterly, or a Specific date.
You might have had complex pricing and billing practices implemented, which makes the billing process more difficult. Therefore, implementing recurring contract billing into your organization's practice will allow you to have greater control over billing each item, billing for each contract, and flexible pricing models. Additionally, you'll be able to automate evergreen renewals. With these features, you'll be able to consolidate invoices, which will give you access to providing complete invoices to customers who have multiple billing schedules. Also, it will save your organization time and provide a customer with a complete and accurate invoice.
By using Deferral templates, you can display many advantages for an organization, such as the length of the deferral being automatically calculated. You can automate deferrals by assigning the template to a product, product group, product category, customer, or customer group. Additionally, the template offers several period frequencies, and the template lines consist of a type and period length.
To set up a Deferral template, follow these steps:
Go to the deferral template page by selecting Subscription billing > Revenue and expense deferrals > Setup > Deferral templates.
Select New.
Enter a name in the Template field, a description of the template in the Description field, and the period frequency in the Period frequency field.
Select Add to add a line to the top of the list of lines.
Note
If you want to add a line to the bottom of the list, select Append.
Select which type of period that you want to use in the Type field. You can choose Recognized or Skipped.
Specify the length of period in the Period length field.
Select Save.
On the Deferral defaults page (Subscript billing > Revenue and expense deferrals > Setup > Deferral defaults), you can set up deferral accounts for items and assign default templates to deferrable items.
Defer by item - You can use the Defer by item default to assign items and customers to specific accounts and templates.
Defer by account - For transactions that don't have specific items, you can specify the deferral accounts. When you use these accounts on your transaction line, it's automatically marked as deferred. As a result, the template and recognition account will correspond with your transaction line.
Note
Prior to being able to implement deferral defaults into your billing schedule, you'll need to set up which transaction that you want connected to the function. The transaction options consist of Sales order, Purchasing, General journal, Free text invoice, Invoice journal. Each template must have a based template or a straight-line template. You won't be able to have both templates.
Finance has another method that you can use instead of using the defaults and creating a template for every item. You can go to Recurring contract billing > Setup > Recurring contract billing parameters, where you'll find a single switch that relates to deferred revenue: Align deferred to billing. When you select Yes, that function will automatically apply to your billing schedule.
Under Revenue and expense deferrals > Periodic tasks > Recognition processing, you can implement recognition processing, which will tell the system that you want everything to be recognized by the cutoff date. Also, you can select to Override transaction date. When you select Preview, all billing schedules will show in your database that need to be recognized. If you select Process, the journals will be entered in the system as recognized.
If you want to review a single recognition table, go to Subscription billing > Revenue expense deferrals > All deferral schedules. Select your desired deferred schedule and then individually recognize it.
You can select specific items to defer by default. You can select a single item, a whole item group, or a category. Make sure that you select the default accounts and templates when you set up the item that you want to defer.
To set up deferred items, follow these steps:
Go to Subscription billing > Revenue and expense deferrals > Setup > Items deferred by default.
Select the tab that you want. Options will include Sales order or Purchasing.
Select Add to add a line.
Select Item code. Options include Table, Group, or Category.
Note
If you select the Item code: Group or Table, you'll need to select the Item relation. If you select the Item code: Category, you'll need to select the Category relation.
Select Save.
Finance allows you to assign deferral defaults on event-driven deferral templates:
Go to Subscription billing > Revenue and expense deferrals > Setup > Event-based deferral templates.
Fill out the Template, Description, and Allocation type.
Note
Five Allocation types are available for you to select depending on your template. Those options include Variable amount, Equal amount, Percentage, Percentage of completion, Variable quantity.
Select Yes or No under Create separate events per unit.
Note
If you want each event line to be split evenly by the number of units on the invoice transaction, select Yes. Otherwise, select No if you don't want to split the event lines.
Select the Expiration account that you want.
Select Add to add a line to the top of the list of lines. Enter Description, Allocation type, Months to expiration, Recognize when posted, Recognition account.
Note
The percentage in the Allocation percentage field must be a number between 0 and 100. Continuing, when you select the number of months that the event is valid, the expiration date on the transaction deferral is automatically entered. If you decide to select Recognize when posted, the revenue will automatically be recognized when it's posted.
Revenue allocation allows you to control and allocate revenue to items that have multiple performance obligations within your contracts. You'll be able to compute the price that a contractor will use to sell goods or services to a customer separately as a percentage of related items. This approach will allow you to maintain compliance with accounting standards by allocating revenue based on the price that a contractor will use to sell a good or service to a customer.