Working with Event-Based Revenue Recognition (EBBR) for Service Contracts

Objective

After completing this lesson, you will be able to use event-based revenue recognition for recurring payments related to service contracts

Event-Based Revenue Recognition (EBBR) for Service Contracts

Features of Event-Based Revenue Recognition

Recognize revenue periodically for price adaptation items, consider values from credit memos for revenue recognition, ensure continuous revenue recognition in the context of auto renewal.

Event-based revenue recognition is enhanced in various releases of SAP S/4HANA Cloud Public Edition to support different scenarios dealing with service contract management.

Service Contracts with Price Adaptation Items

Prerequisites are met for including price adaption items and these are highlighted in the Service Contract Details page. The contract status is released and a billing plan for the service contract item is in place.

Prerequisites for revenue recognition processing:

  • The service contract item with the item category for price adaptation needs to be released.
  • A billing plan needs to be created.
Pricing details and billing value highlighted in a service contract item details page.

In the example in the figure, there is a one-year service contract with a quarterly billing plan assigned. The monthly price of the product is adapted at the beginning of the second half year from 120USD to 150USD.

01/01/2019 - 06/30/2019:

  • Quarterly billing = 120USD × 3 = 360USD
  • Monthly revenue recognition = 120USD

07/01/2019 - 12/31/2019:

  • Quarterly billing = 150USD × 3 = 450USD
  • Monthly revenue recognition = 150USD
An overview of revenue for a company in the Event-Based Revenue Recognition for Service Documents page. Includes billed revenue, revenue adjustments, and recognized revenue. A detail compares how recognized revenue appears in an income statement and a balance sheet.

Period 01

(1) Invoice Q1 - 360USD

(1') Defer Invoice - 360USD

(2) Revenue recognition at month end 01 - 120USD

A screen of revenue, billed revenue, revenue adjustments, and recognized revenue, with a detail of the income statement and balance sheet. Also includes new periodic prices.

In period 07

(9) Invoice Q3 - $450

(9') Defer Invoice - $450

(10) Revenue recognition at month end 07 - $150

The price adaptation is reflected in revenue recognition.

Service Contracts with Credit Memos

Screen of a credit memo created with a net value of 360 USD and tax amount of 14.40 USD. The Journal Entry with reference to the associated billing documents includes a credit of 374.40 that offsets the service item and sales tax debits.

A 6-months service contract with a quarterly billing plan assigned:

  • Service contract value: 720USD
  • Duration: 1st January 2019 to 30th June 2019
  • Quarterly billing = 720USD / 2= 360USD

At the end of June, the service contract is fully billed and the revenue is recognized.

The billing clerk creates a credit memo based on the earlier invoice with an amount of 360USD.

Two views of the Event Based Revenue Recognition for Service Documents screen. Billed Revenue and Recognized Revenue are adjusted as credit memos are created with reference to the service contract.

Values from credit memos are considered for revenue recognition:

  • For service contracts in the status fully billed and all billing documents have been posted
  • With period end closing, the adjustments of revenue recognition for credit memos are carried out.

At the end of period 6, the service contract is fully billed and the period-end closing is completed for period 6:

(1) Credit memo 360USD

(1') Revenue adjustment for credit memo 360USD

(2) Clearing of deferred revenue with period end closing 360USD

Configuration for EBRR Service Documents

Configure Event-Based Revenue Recognition via the app Configure Your Solution, which is under the application area Finance and sub-area Profitability Analysis. Service relevant configuration steps are found under Derivation of Recognition Key for Service Documents.

Event-Based Revenue Recognition provides a lot of flexibility via its revenue recognition SSCUI that is available.

Edit fields for Derive Recognition Key for Service Documents. CCS stands for periodic revenue recognition for service contracts, CCSN stands for no event based revenue recognition.

With the configuration app, you can:

  • Assign a recognition key to an item category and optionally to certain materials
  • Unassign a recognition key to deactivate event-based revenue recognition for the maintained entries, validate only for new service documents
  • Delete wrongly created entries, validate only for new service documents. It is not possible to delete pre-delivered entries.

Note: if you want to discontinue event-based revenue recognition for the existing service documents, you could change the recognition key to CCSN in the "Revenue Recognition (Event-Based) - Service Documents" app. With the period end run, the system clears the remaining balance on EBRR accounts.

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