When invoicing customers based on products rather than subscriptions and contracts, it may be necessary to exclude certain products from revenue calculations. It is important for businesses to have clear and consistent policies for determining which products should be excluded from revenue calculations to ensure accurate financial reporting. RevRec helps you with excluding such products from your revenue recognition process with the help of product exclusion feature.
Let's look an example. Consider ABC Inc., an internet subscription provider who also supplies wi-fi extender device at free of cost for customers subscribing to their premium service. However, when the device needs to be replaced, ABC Inc. charges them a replacement cost for the provision of new hardware. These charges would not be recognized in the books as revenue, but would be recognized as expense paid by the customer.
You can configure such items as Pass-Through-Products in RevRec, and exclude them from revenue calculation. RevRec identifies such products on the sales orders as a Pass-Through-Products and does not recognize revenue on the line item. RevRec ignores all your Pass-Through-Products from the revenue calculation without compromising your compliance with Accounting Standards Codification (ASC) 606 and International Financial Reporting Standard (IFRS) 15.
Contact RevRec Support to configure Pass-Through-Products for product exclusion on your RevRec site.
The following sections cover the interpretation of Pass-Through-Products on various touch-points in your RevRec site.
All the details and numbers that are displayed on the homepage of your RevRec site are exclusive of Pass-Through-Products.
The Products page displays the complete list of products present in your RevRec site, including any Pass-Through-Products.
When you navigate to the Customer Details page and click Invoices tab, the invoices associated with the specific customer appear, including the details of any Pass-Through-Products. In the example below, Product A1 & Product C1 are Pass-Through-Products.
The General tab on any sales order page displays the total Contract Value including the extended sales price of Pass-Through-Products. The Sales Order Items section displays all the products that are associated with the sales order.
To view the revenue arrangement of a sales order, click Sales Order > Arrangements. The Arrangements page displays the following three sections:
Sales Order: This tab provides a summary of the sales order, where the Contract Value is inclusive of extended sales price of Pass-Through-Products.
Revenue Elements: Revenue is allocated to the products in the sales order based on the Sale Price, and the Standalone Selling Price configured for the respective products. This section does not include any Pass-Through-Products as they've been excluded from revenue calculation. In the example below, Product A1 and Product C1 are Pass-Through-Products. Therefore, the Revenue Elements section does not include these products.
Revenue Plan: View the revenue plan for the sales order either graphically over time, or you can flip the Graph toggle to see the plan in numbers. The Product(s) drop-down helps you view the plan for specific products. The Products drop-down on the Arrangement and the Product By Product tabs does not include any Pass-Through-Products as they've been excluded from revenue calculation. In the example below, Product A1 and Product C1 are Pass-Through-Products. Therefore, the Revenue Plan section does not include these products.
The following sections capture the Pass-Through-Products' impact on the numbers tracked in your RevRec reports.
The values displayed in all the revenue reports on your RevRec site excludes the Pass-Through-Products.
Sales Order report tracks the active sales orders (contract value) and SSP allocation by accounting period. Therefore, under the Extended Sales Price field, you'll find the Pass-Through-Products values. However, under the Allocated Revenue field their values would be zero as they are not included in revenue calculation.
Invoice report tracks those invoices that RevRec has received, including the future-dated invoices. This report displays all the invoices for each product, and Pass-Through-Products are therefore not excluded from the grid.
Invoice Control report tracks the invoices that RevRec has received, up to the current accounting period.
Under the New Invoices field, the report captures all products. However, the New Billing does not include any details of Pass-Through-Products.
Revenue Control report is a control measure to ensure that the life-to-date bookings for active/non-expired sales orders equal the sum of revenue recognized for active/non-expired sales orders and future period revenue.
The future revenue amount on this report for the period can be reconciled with the ending backlog reported in the Revenue Backlog WaterFall report. The report does not include Pass-Through Products' details or expired/inactive sales orders.
Journal Entry Control report validates that no journal entry is missed due to General Ledger(GL) account mapping issues for recognized revenue for the period and since there is no revenue booking of Pass-Through-Products this report will not have any impact on Pass-Through-Products.
The Journal Entry Report under the Accounting category reports the accounting journal entries for revenue based on your account mappings. As RevRec excludes the revenue impact of Pass-Through-Products from its calculation, this report will not have any impact of Pass-Through-Products.
These reports track the quantity of the services delivered during the accounting period, and any Pass-Through-Products with Proportional Performance method will be included in these reports.
In Order Exports, all the order details including Pass-Through-Products will be exported. In the excel file, a new field Is_Pass_Through_Item gets added with the following possible values:
In Revenue Exports, the revenue numbers will not include Pass-Through-Products as they are excluded from Revenue Calculation.