What are the revenue recognition methods in RevRec and their associated rules?
Scope
What are the types of revenue recognition methods in RevRec?
What is the list of RevRec SSP allocation methods that support SSP allocation methods?
Which revenue recognition method is used for post-contract in RevRec?
Which revenue recognition method is used at the time of delivery in RevRec?
Which revenue recognition method is used based on usage?
Summary
RevRec support several different ways in which revenue can be recognized. It uses a standalone selling price library to map each product item in the contract to the respective revenue recognition rule.
Solution
| Recognition Method | Revenue Rules | Expense Rules |
|---|---|---|
| Ratable | The Ratable method of revenue recognition distributes the revenue equally across the performance period of the product being sold. This is true even if the booking and billing for the entire contract are received upfront. The Ratable method is commonly used to recognize revenue for SaaS-based product offerings. Another common use case is with post-contract customer support where a period is generally a year from the initial contract. | The expense amount is capitalized and amortized over the period of time, or over the period of the contract for any subsequent renewals. |
| Point in Time | When using the Point in Time revenue method, the full booking amount of the product sold is recognized at the time of delivery. Common use cases are product training, hardware, perpetual, and term software licenses. | The full booking amount of the expense is recognized at the time of delivery. |
| Proportional Performance | When using the Proportional Performance revenue method, revenue is recognized each period based on services that are delivered or the proportion of the work that is completed. For e.g. A company selling 1000 hours of professional service engagement to set up a medical laboratory in a hospital. Revenue here will be recognized each period based on the number of hours for which the service was provided. |
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