Exploring Process Steps for Event Based Revenue Recognition

Objective

After completing this lesson, you will be able to implement the process steps for Event Based Revenue Recognition.

Process Steps in Revenue Recognition and Related SAP Fiori Apps

The process steps for customer project revenue recognition and the supporting SAP Fiori applications for each of them are summarized in the following table:

Process Steps

Process StepSAP Fiori App
Execute event based revenue recognition for projects. ​Event-Based Revenue Recognition - Projects​
Adjust revenue recognition. ​Event-Based Revenue Recognition - Projects​
Manage issues in revenue recognition​
  • Manage Real-Time Revenue Recognition Issues​
  • Manage Revenue Recognition Issues - Projects​
Report project WIP details (time and expense projects). ​Display Project WIP Details​
Run revenue recognition periodically in background​Run Revenue Recognition – Projects​
Review revenue recognition postings​Inspect Revenue Recognition Postings​
Reverse revenue recognition runs​Reverse Revenue Recognition – Project Manager​

Execute Event-Based Revenue Recognition for Projects

Revenue recognition for projects is automatically run, in real time, every time a financial posting considered as an event (affecting project revenue) takes place.

The application Event-Based Revenue Recognition – Projects is nonetheless necessary for Project Managers and Controllers to verify the revenue situation of the project work packages (billing elements to be more precise) at any time, and to run the recognition of revenue, considering all available data including non-events, at period-end closing.

Users first select the projects for analysis when the application is run. Filters can be predefined for the users to see, for example, only projects they are responsible for.

SAP Event-Based Revenue Recognition-Projects interface describing Billing Elements data.

After a billing items is selected, the revenue recognition detail screen is displayed:

The SAP interface displays the Event-Based Revenue Recognition - Projects screen for a project with the identifier ES0001.1. The screen includes sections for searching and filtering billing elements, with details about the project definition, company code, revenue recognition key, and processing status. The right side of the screen provides detailed financial information, including income statement, balance sheet, and plan data/EAC. Specific data points include actuals, adjustments, recognized revenue, cost of goods sold (COGS), contract assets, contract liabilities, manual contract accruals, and recognized margin. The interface allows users to manage and analyze revenue recognition for the project.

With this app, costs and revenues associated with project based transactions are recognized as they occur. Cost postings are matched to revenues and immediately reported as expenses, while revenues are posted to an income statement account. Recognition and adjustment postings are generated simultaneously with the transactions. The app is fully integrated with the G/L.

The application is divided in four sections:

  • Income statement:
    • Actual cost and revenues (Actual)
    • Adjustments (calculated by the application and still pending of actuals)
    • Recognized values (Actuals + Adjustments).
  • Balance Sheet:
    • Contract Assets, like accrued revenue due to work or expenses done but not yet billed.
    • Contract Liabilities, such as deferred revenue in billing.
    • Manual Contract Accruals, manually entered to reflect additional expected revenue.
  • Plan Data/EAC:

    Planned revenue and cost, considering EAC for accuracy

  • Periodical View:

Recognition data is stored in the same location as cost and revenue data, eliminating the need for periodic batch jobs. Costs and revenues always match, reported profit and margins are always up to date. Income statements or cost of sales reports can be produced at any time.

Key Features

  • Support for sales projects with Fixed Price, Time and Expense, or Periodic Service
  • Full transparency into the revenue recognition process
  • Enhanced cost management data through additional reporting attributes such as Customer Group
  • Ability to analyze recognition values based on accounting principles
  • Ability to analyze individual recognition postings in detail
  • Ability to drill down from recognition journal entries to cost or revenue journal entry and source document
  • Ability to adjust the recognized revenue and cost of sales
  • Ability to enter accruals, such as for anticipated losses or unrealized costs

Note

The standard delivery supports revenue recognition based on IFRS requirements. Only single level projects are supported.

Adjustments

Adjustments can be manually input in the event-based revenue recognition application. Three manual adjustments are supported:

The SAP interface displays screens for managing adjustments and accruals for project ES0001.1. The Temporary Adjustment screen shows actual values and simulation results for assets, liabilities, recognized revenue, and adjustments. Users can input fiscal periods and journal entry item texts to update recognized costs and revenue. The Enter Accruals screen allows users to enter accrual amounts for specific balance sheet and income statement accounts, including reserves for invoiced sales, anticipated sales deductions, and unrealized costs. The Change Revenue Recognition Key screen enables users to change the revenue recognition key for the project, selecting from options like SPTM (Time and Material DIP based). The interface provides tools for detailed financial adjustments and accrual management for projects.
  • Temporary adjustments of the recognized revenue and associated cost of sales (COS)
  • Manual contract accruals, such as "Reserves for Imminent Loss", "Anticipated Sales Deductions", "Reserves for Unrealized Costs".
  • Change the revenue recognition key that indicates the method used in the billing element for revenue recognition.

If you enter temporary adjustments, or if the planned cost for a fixed price project has changed, you need to do one of the following:

  • recalculate the revenue recognition values for the specific items affected, or
  • execute a periodic revenue recognition run.

Revaluate function in the Event Based Revenue Recognition application recalculates the billing element as per period closing and provides a detailed analysis of the step-by-step calculations performed:

The SAP interface displays two screens for project ES0001.1. The Revalue screen shows actual values and simulation results for assets, liabilities, recognized revenue, and adjustments for a specified fiscal period/year and ledger. It allows users to simulate and print revaluation details. Recognized revenue and adjustments are updated based on the revaluation. The second screen is a log entry detailing the creation of a document by event-based revenue recognition. It outlines steps including the calculation range, object parameters, accounting principles, posting period, and revaluation based on the revenue recognition key. Each step includes detailed information on actual values, plan values, recognized and accrued amounts, and income statement adjustments. This log provides transparency into the revenue recognition calculation process.

Run Revenue Recognition - Projects

SAP New Job interface displaying Run Revenue Recognition-projects data such as General Information, Scheduling Options, and Parameters.

Use this application to execute a periodic revenue recognition run for projects (planned background process). The run recalculates the revenue recognition values for all selected WBS elements. In event-based revenue recognition, all costs and revenues associated with project based transactions are recognized in real time, so there's normally no need for periodic revenue recognition runs during the period. However, there are cases where a revenue recognition run is necessary. For example, you may have manually adjusted the revenue recognition values with the Event Based Revenue Recognition - Projects app, or you may have changed the project planned cost or adjust deferrals. A period end-closing revenue recognition run is needed, and you can plan it as a periodic revenue recognition run using this application.

Manage Issues in Revenue Recognition

There are two applications that generate background processes to resolve issues in revenue recognition:

  • Manage Real-Time Revenue Recognition Issues
  • Manage Revenue Recognition Issues - Projects

Manage Real-Time Revenue Recognition Issues

SAP Manage Real-Time Revenue Recognition Issues interface highlighting To Period, Company Code and Reference Document Type stating no data found.

The figure displays the Manage Real Time Revenue Recognition Issues app.

During cost or revenue posting on the cost object, errors that stop real time revenue postings can occur. This app allows you to review these posting entries where no corresponding real time revenue recognition posting exists and make the necessary corrections.

No data found indicates that there are no issues. If issues are shown, review and process corrections.

Manage Revenue Recognition Issues - Projects

SAP Manage Real-Time Revenue Recognition Issues interface highlighting To Period, Company Code, Ledger, along with Manage Real-Time Revenue Recognition issues and Run Revenue Recognition-Projects buttons highlighted.

The figure displays the Manage Revenue Recognition Issues - Projects application.

You use this app to correct errors that occurred when the Run Revenue Recognition - Projects app is executed.

Key Features

  • Analyze and correct errors in revenue recognition runs for projects
  • Reprocess the WBS elements to ensure correct revenue recognition values
  • Navigate directly to the Manage Real Time Revenue Recognition Issues app and the Run Revenue Recognition - Projects app.

Projects - Actuals

Project-Plan and Actual reports displaying data for Project definition, G/L Account, Actual Amount in Company Code, Plan Amount In Company Code, and Difference Actual Plan.

The figure displays the Projects Actuals app.

Purpose

This CDS view provides the prerequisites for answering the following business questions:

  • What are the actual amounts per project, WBS element, and G/L account in the transaction currency?
  • What are the actual amounts per project, WBS element, and G/L account in the company code currency?
  • What are the actual amounts per project, WBS element, and G/L account in the global currency?

For all three currency types, you can drill down for further relevant characteristics.

Prerequisites

This view is based on the CDS Cube I JournalEntryItemCube.

  • You need the following authorizations:
    • Ledger: F FAGL LDR (GLRLDNR)
    • Company Code: F BKPF BUK (BUKRS)
    • Financial Account Type: F BKPF KOA (KOART)
    • Business Area: F BKPF GSB (GSBER)
    • Segment: F FAGL SEG (SEGMENT)
  • You must have specified your default controlling area (GET/SET parameter CAC).

Structure of the Projects Actuals CDS View

  • Business Objects

    This view is build on the following business object: CDS Cube I JournalEntryItemCube

  • Main Input Parameters
    • Ledger Fiscal Year
    • Fiscal Period
    • Company Code
    • Functional Area
    • Segment
    • Profit Center
    • Customer
    • Project Definition
    • GL Account Hierarchy
    • GL Account
  • Measures and Attributes
    • Measures
      • Actual Amount in Global Currency
      • Quantity
    • Attributes
      • Actual Amount in Transaction Currency
      • Actual Amount in Company Code Currency

Display Project WIP Details

The figure displays the Display Project WIP Details app.

SAP Display Project WIP Details arranged by Customer, Project Definition, Services Rendered, Posting Date, Project Manager, Billing Element, Calculated WIP in Company, and WIP in Project Currency.

Purpose

This app monitors the revenues for project-based services which you have provided to your clients. The app can help you to reduce your levels of unbilled work and optimize service invoicing. It shows unbilled revenues, allowing you to analyze employee profitability at an early stage.

Note

The app shows information on Time and Material (T&M) processes only. It does not show fixed price items. To see fixed price items, look at the project actuals.

Key Features

  • WIP information for selected projects with activated project billing
  • Revenue details such as billable revenue, billing requested revenue and revenue write-offs
  • Recognition key of the WBS element for event-based revenue recognition
  • Basic information on the project, such as the project manager or the posting date

The data shown in the app is updated with the closing run of event based revenue recognition. The closing run should be executed with accounting principle LG (Local GAAP). You execute the closing run with the Run Revenue Recognition Projects app.

Note

This app contains in app help for key fields and concepts. To display the help while working in the app, press F1 or choose the question mark displayed in the app header.

Note

You should use this app to monitor customer projects for which the Project Billing functionality has been activated. Hence, if you have activated scope item 4E9, which grants access to the project billing, the Display Project WIP Details app can be used to review the WIP details report.

Inspect Revenue Recognition Postings

This application supports the detailed analysis of the financial postings related to revenue recognition by project or WBS elements over time.

SAP Inspect Revenue Recognition Postings interface displaying analysis of financial postings related to revenue recognition by project or WBS elements over time.

Postings are displayed in the form of T-accounts and two levers, fiscal period and sequence by ordinal number or document number, allow tracking the evolution of revenue over time.

Reverse Revenue Recognition

This application creates a process for reversal of revenue recognition runs. Reversals are usually not necessary as subsequent revenue recognition runs at period-end closing correct the revenue and cost of sales position of the billing elements, but in some situations, such as closing a project incorrectly created in the system, reversals should be used to eliminate unnecessary financial documents from analytics.

SAP New Job Reverse Revenue Recognition-Project Manager interface displaying 3 steps, Template Selection, Scheduling Options, and the selected step, Parameters.

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