5th July 2021

Introduction:

Revenue contingencies are terms and conditions in a sales contract or order that prevent revenue from being immediately recognized, based on strict revenue recognition requirements mandated by International Accounting Standards. Typical contingencies that can delay revenue recognition are fiscal funding clauses (for government contracts), cancellation clauses, customer acceptance clauses, customer creditworthiness, nonstandard payment terms, and nonstandard refund policies.

Using event-based revenue management, Receivables can automatically evaluate your invoices to determine whether to immediately recognize revenue or temporarily defer revenue to an unearned revenue account. Revenue is subsequently recognized depending on certain events, such as customer acceptance or receipt of payment.

This topic will talk about recognizing revenue based on the receipt of payment.

Setup Steps

1. Define the Transaction Type (will use it as a condition in contingency assignment)

  • Navigate to the Manage Transaction Type >> Press on Add (+) to create a new transaction type.
  • Insert all mandatory information and insert the unearned revenue account combination.
  • Save and close.

 

 

2.  Define an Auto Accounting Rule

  • Navigate to the Manage Auto Accounting >> Select Business unit >> Press on Add (+) to create an accounting rule for Unearned Revenue.

 

 

3.  Define a Revenue contingency:

  • Navigate to the Revenue Contingencies page >> Press on Add (+) to create a new contingency.
  • Enter the basic details about the contingency in the General Information region, such as Name, Effective dates, and Description.
  • In the Contingency Removal Event region, select the event that will remove the contingency from the invoice which is payment in our case.
  • Save and close.

 

4. Assigning Contingency

You can define defaulting rules for automatic contingency assignments.

Search for task ‘Manage Revenue Contingency Assignment Rules’ Press on Add (+) to create an assignment

  • In the General Information region, enter basic details about the assignment, such as name, and description.
  • In the contingency, name select the contingency created in the previous step
  • Press on Add parameter ‘in our case we add parameter = ‘Transaction Type’.
  • Press on Submit.

 

Create Scenario

1.  Create AR Invoice

  • Create a normal AR invoice and it must use the same transaction type which was used in the revenue contingency step.
  • Insert header and line information and press the save button.
  • Press the Complete Button.

 

 

2.  Check distribution

The system will automatically hit the unearned revenue instead of revenue (Check Account class).

 

3.  Create a receipt and apply it to the invoice

 

4.  Check the Invoice distribution after the receipt application

The system will automatically close the unearned revenue and open the revenue (Check the Account Class).

 

 

Author: Mina Adel, Senior Oracle Financial Consultant