Difference between Revenue Acct Determination , Revenue Recognition

[Former Member]

Hi All,,

Can any one exmplain me clearly the difference between Revenue Account Determination, Revenue Recognition and Reconciliation Account determination

Regards

Rajesh

[Former Member · Accepted solution]

Hi Rajes

REVENUE ACCT. DETERMINATION:

Account Determination

Use

To be able to use revenue recognition, you should select several special general ledger accounts. Choose: Sales and Distribution -> Basic Functions -> Account assignment/Costing -> Revenue Recognition

Determining the Revenue Account

Revenue recognition uses revenue account determination. To set up revenue account determination, use transaction VKOA.

Determining Non-Billed Receivables Accounts

The account for non-billed receivables is a special general ledger account, used to determine revenue which has been implemented but not yet billed.

If you want to set up an account, join an account with non-billed receivables together with a customer reconciliation account which is a part of your chart of accounts. You can use the transaction OVUR for this.

The standard system has the balance sheet account 142100 for non-billed receivables in the USA and in Canada (Accruals and Deferred Income).

Determining the Deferred Revenue Account

The deferred revenue account is a special general ledger account, used to determine revenue which has been billed but not yet implemented.

The system determines the deferred revenue account for a document item using standard SD account determination. Use the transaction VKOA for this.

REVENUE RECOGNITION:

Revenue Recognition Method 1: Sales Basis

This is the method that probably makes the most sense to investors. Under the sales basis method, revenue is recognized at the time of sale (defined as the moment when the title of the goods or services is transferred to the buyer.) The sale can be for cash or credit (i.e., accounts receivable.) This means that revenue is not recognized even if cash is received before the transaction is complete. A magazine publisher, for example, that receives $120 a year for an annual subscription, will only recognize $10 of revenue every month. The reason is simple: if they went out of business, they would have to return a pro-rated portion of the annual subscription price to the customer since it had not yet delivered the merchandise for which it had been paid.

Revenue Recognition Method 2: Percentage of Completion

Companies that build bridges or aircraft take years to deliver the product to the customer. In this case, the company responsible for building the product wants to be able to show its shareholders that it is generating revenue and profits even though the project itself is not yet complete. As a result, it will use the percentage of completion method for revenue recognition if two conditions are met: 1.) there is a long-term legally enforceable contract and 2.) it is possible to estimate the percentage of the project complete, revenues and costs.

Under this method, there are two ways revenue recognition can occur:

Using milestones such as number of railway track complete

A construction company is paid $100,000 to build fifty miles of highway. For every mile the company completes, it is going to recognize $2,000 in revenue on its income statement ($100,000 / 50 miles = $2,000 per mile.)

Cost incurred to estimated total cost

Using this metric, the construction company would approach revenue recognition by comparing the cost incurred to-date by the estimated total cost. For example: The business expects the same $100,000 of highway to cost it $80,000 in parts, material, labor, etc. At the end of the first month, it has spent $5,000 working on the project. $5,000 is 6.25% of $80,000; therefore, it would multiply the total revenue ($100,000) by the percentage of the cost incurred (6.25%), or $6,250, and recognize this amount as revenue on its income statement.

One caveat: if you find yourself reading through the 10K of a company that is utilizing the percentage of completion revenue recognition method, you may want to watch out for premature booking of expenses such as the purchase of raw goods. Until the goods have actually been used in the production cycle (e.g., pouring the actual concrete on the job site, not purchasing the concrete at Home Depot), the cost should not be counted. A business that does not make this distinction is prone to overstate revenue, gross profit, and net income for the period as a result.

Reward if useful to u

[Former Member]

HI Rajesh,

Account determination means we determine the revenues,deductions,taxes and so on to particular General ledger accounts, So the determination is Applicationchart of accountsconditiontypesales orgcustomer account assignment groupmaterial account assignment groupaccount keys+Gl accounts.,

So these account keys are assigned in pricing procedure,This keys are inturn assined to t he GL accounts, this is the reaosn why the revenues ,deducions,taxes are posted in different GL accounts

In revenue recog. you can create your billing documents and they will be passed to accountings.But in this case your customer account would be debited and deferred accounts would be credited.

Revenue recognition is that you can post all the revenues from a deferred account to sales revenue account for a particular period together for all the docs. through transaction VF44.

if you can se your sales docs no. in VF44,then your revenue recognition is successful.Press on collective processing inside VF44 for posting the revenues from deffered acc to sales revenue account.

Configuration part includes the setting of revenue recog. in item category by following the path sd-basic functionsaccount assnmnt/costingrevenue recog.

Then you have to assign G/L accounts.In the first column of assigning g/l accounts ,enter your sales revenue account and in the second column enter deferred revenue accounts.Deferred revenue account is a spcl g/l account.

Don't forget to enter reconcilliation account in your customer master as well.

It may happen that in revenue recog item categories fields may greyed out but you have to get authorization for your id from a basis guy.

REVENUE RECOGNITION :The point at which revenue (income) is credited to a revenue account in General Ledger. There are three possible types

Time-based : Revenue is recognized in equal proportions between specific start and end dates based on the number of posting periods defined at the company level. Revenue recognition for time-based documents can occur before, during, or after the invoice process.

Performance-based : Revenue is recognized based on the occurrence of certain events such as goods issue or the performance of a service. Revenue recognition for performance-based documents can occur before, during, or after the invoice process.

Standard : Revenue is recognized at time of invoice.

Reconciliation - as the name suggests is used for Reconciliation of customer balances.At any point of time i can login into T.code FS10n and give the reconciliation account number and check the balances due from customers.

EX: In your Company code you have 2 customers. All the customer master records are populated with reconciliation account AAAA in the Company code data.

When ever the system records a sale transaction, the following FI entry is passed:

Customer Account Dr

to Sales A/c Cr

The accounts updated here are Customer account, sales account as well as the Reconciliation Account.(because we have entered this in master record of the customer,it also gets updated in real time)

If i have done Rs.1000 with customer X(with recon account AAAA entered in the master record)Rs.2000 and with customer Z(with recon account AAAA entered in master record), the total balance of recon account would be Rs.3000.

Reward points pls

Regards,

Govind.