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Revenue Recognition
Refers to the timing of booking revenue entries for sales transactions Governed by GAAP (Generally Accepted Accounting Principles) as well as industry-specific accounting pronouncements
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Sound rather intimidating? What do these criteria mean? Lets take them one at a time
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Collectibility is Probable
Means that collection of the resulting receivable should be reasonably assured at the time the sale is made If a business sells to a customer that carries considerable credit risk or has a record of either slow or non-payment of invoices, then revenue recognition must be deferred until payment is received
So what does all this mean for your Oracle Apps Implemention?
During the requirements gathering phase of your implementation, it is important to identify and understand the revenue-related accounting requirements for your business
Be sure to involve your Finance team and consider the revenue recognition principles described above as well as any industry-specific accounting pronoucements issued by the FASB (Financial Accounting Standards Board)
Take time to understand standard Oracle functionality Assess the match between Oracle and your business requirements analyze gaps
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Revenue Recognition will occur on the AR Transaction GL Date in the absence of any revenue-related configurations
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Revenue Policy
For more complex revenue recognition scenarios, allows you to define the criteria around the deferral of revenue when using the Revenue Management Engine to make automated revenue recognition decisions on imported invoices If you do not define these options, Oracle will not attempt to make automatic revenue recognition decisions Criteria provided are: Standard Refund Policy Payment Term Threshold Credit Classifications 13
Automatically makes the decision whether to initially distribute revenue to an Earned Revenue or Unearned Revenue account AutoAccounting then determines the GL account distributions
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For each segment of your accounting flexfield, specify in Receivables AutoAccounting setups how Oracle should determine the segment value.
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Use Constant Value when the value for the accounting flexfield segment should always be the same For any of the other table options, keep in mind that you must populate the values on each of these sources. For example, if you select Inventory Item as the source, you must populate the Revenue Account on each of your Inventory items.
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The Wizard provides selection criteria to assist you in choosing the appropriate lines for revenue adjustment AutoAccounting provides the distributions for revenue adjustments Review and approval of the changes is also offered
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Therefore, revenue recognition and accounting requirements must be considered during the implementation and configuration of these modules as well
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Invoice Distributions
Transaction Distributions
General Ledger
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In Summary
Revenue Recognition rules can be very complex Plan your Oracle Apps implementation with your business revenue recognition requirements in mind Take the time needed to document your revenue recognition requirements and determine how the various Oracle modules can best be leveraged to meet your specific needs Always involve your Finance team in the requirements gathering and solution design decisions for any module that integrates with Receivables
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