Prior Period Adjustment
Overview
This feature offers a more precise method of recording, tracking, and reporting revenue adjustments related to prior accounting periods. Currently, any changes in sales orders, including corrections, retrospective treatment credit notes, and updates to closed period delivery logs, result in Revrec recognizing the total revenue impact, including the catchup adjustments for the past accounting periods. However, this process cannot distinctly display current period revenue separate from adjustments made for prior periods. With this feature, we aim to isolate the accounting impacts resulting from updates affecting past accounting periods, separating them from the ongoing revenue activities in the current period.
Prerequisite
To activate the Prior Period Adjustment feature on your site, please contact revrec-support@chargebee.com.
Accounting
Catch-up Adjustment
Whenever a change in the sales order impacts the revenue for prior closed periods, RevRec automatically books a catchup adjustment in the current accounting period. This adjustment ensures that the revenue that should have been recorded in the prior periods due to the change in the current accounting period is accurately reflected.
Separate Metrics
RevRec records the impact of changes for prior period adjustments and current periods' revenue separately with this feature. This results in separate metrics for each, making analyzing and reporting on these adjustments easier.
Example:
A ratable sales order is created on January 01 with an amount of $600 and a six-month term. Correction is made on the sales order, with March being the current open accounting period where the amount is changed to $800.
Day 1
Actg Period | Revenue |
2023-01 | $100.00 |
2023-02 | $100.00 |
2023-03 | $100.00 |
2023-04 | $100.00 |
2023-05 | $100.00 |
2023-06 | $100.00 |
Day 2
Actg Period | Revenue | Revenue - PPA |
2023-01 | $100.00 | |
2023-02 | $100.00 | |
2023-03 | $133.33 | $66.66 |
2023-04 | $133.33 | |
2023-05 | $133.33 | |
2023-06 | $133.33 |
Following the correction, the intended monthly revenue should have been $133.33. However, the correction was implemented in March, so we cannot go back and change the closed period records. The total revenue for January and February was $200, whereas it should have been $266.66 if the cumulative contract value on day one was $800. Consequently, a catchup adjustment of $66.66 was recorded in March to reconcile the revenue that should have been recognized in prior periods due to the correction.
Revenue Reports
New Metric
To capture prior period adjustments separately and isolate them from the current period revenue activities, a new metric called Revenue - PPA is added to the Unearned Rollforward report.
Effective Period Attribute
Effective Period is an additional drillable attribute. You can find this attribute under the drill hierarchy Periods > Effective Periods. It allows you to drill down to see further the breakdown of PPA adjustment for each specific period in the past.
Note
The Revenue-PPA metric will not display any roll forward activity on prior line items if the Effective Period attribute is drilled.
Journals
New Account Type
You can use a new account type - Revenue PPA, specifically for booking prior period adjustments in the journals, in case you want to track prior period adjustments in separate GL accounts. The default settings for this account type are as follows:
- Account Number: 4001
- Account Name: Revenue PPA (RL)
- Account Type: Revenue PPA
Note
You do not need to have separate GL accounts for PPA.
Effective Period Attribute
The Effective Period attribute is also available in the Journals. This allows you to track the revenue adjustments for prior periods on an effective period basis.
User Interface Changes
Dashboard and Widgets
The dashboard and widgets on the user interface display the total revenue, including any prior period adjustments and the current revenue for the accounting period.
Further, the dashboard's Deferred Revenue Balance Graph shows the Revenue - PPA activity as part of this feature.
Deferred Revenue Rollforward Report
Revenue - PPA is an attribute present in the Deferred Revenue Rollforward report grid and graph for better visibility of prior period adjustments.
Revenue Plan
You can find the Revenue - PPA metric within the revenue plan for each sales order revenue arrangement. Review adjustments for each product and their overall impact in the grid and graph view.
Exports
The Sales Order Page's revenue export and the automated export, which includes closed periods and continuous exports, can incorporate the latest metrics for prior period adjustments for revenue.
Unearned Revenue Rollforward and Revenue Exports
Both the Unearned Revenue Rollforward and Revenue Exports have the Revenue - PPA metric available, in addition to the revenue metric, to capture prior period adjustments separately. You can also find another attribute, Total Revenue, which is the sum of the current period revenue and prior period adjustments.
Journal Exports
Journal exports has a separate account type, Revenue PPA, to capture and isolate prior period adjustments.
Multi-Currency
In environments where the Multi Currency feature is enabled, revenue and prior period adjustments will be converted into the home currency to maintain consistency across currencies.
Was this article helpful?