How to bill to deferred account and then move to actual service account

[former_member354984]

Hi Everyone,

I am looking for Sales order/ contract based solution to handle subscriptions and book intial billing to deferred revenue account and then move from deferred revenue to actual service income account during amortization. As per Revenue recognition principle the revenue has to be booked only when service is performed.

Scenario is

My client sells yearly subscription for maintenance related activities of some software which they sell, it charges $1200 upfront for 12 months. But the service needs to be performed every month. That means $100 for each month needs to be booked after the service is performed every month.

So intial we want to create a sales contract for sale of the subscription, order based billing needs to be done for $1200 intially, the same needs to be booked in the deferred revenue account and then each month amortization needs to be done to move from Deferred revenue to Service income, at the end of 12 months, deferred revenue account balance will be become zero and the revenue is booked properly.

Kindly let me know what would be a good way to handle this scenario.

Sales order-Peridoc billing plan and then amortization via SD revenue recognition

or Sales contract-periodic billing-release order-billing . I need to understand how this can be done in a standard SAP way through SD module.

Thanks in adavnce!!!

[Former Member]

Hi,

We have used this scenario, and in your case it should time based rev rec as you bill the customer once the service is performed meaning the month is over.

Depends on your business requirements you can use either way, once you have billing plan in place(Lets say you are billing customer on 1st of every month), you should have 12 periods in your billing plan and on every 1st of month system will generate the billing document and will recognise the revenue from deferred account.

Hope it will help you.

Thanks,

Jay

[alex_zheng]

Hello,

You may take a look at the attachment of SAP note 1172799, where you can find the SAP ERP SD revenue recognition best practices documentation.

I'm not sure if you can use time-based revenue recognition or it has to be service based revenue recognition.

For time based revenue recognition, please look at page 30 of best practices part 1 for process 3.

For service based revenue recognition, please look at page 34 for the variantion of process 5:

Instead of using a delivery-relevant material, a service material can be used in order

items (contracts with a service material cannot be used).

Then the item has to be customized as not ‘delivery-relevant’ and the billing

relevance of the item has to be ‘order-related’ (FKREL = B or I).

Alternatively, you can consider the service based revenue recognition in contract with call-off order process in page 36, process 7.

Hope this helps.

Best regards,

Alex

[former_member354984]

Thanks for the reply. Will check those SAP Notes