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Introducing Event-Based Revenue Recognition

Objective

After completing this lesson, you will be able to introduce Event-Based Revenue Recognition

Introduction: Event-Based Revenue Recognition - Project-Based Services

Event-Based Revenue Recognition Process Flow Overview

Learn about Event Based Revenue Recognition such as Real-Time Financial insights, Revenue and Cost Adjustments.

The figure demonstrates an overview of the process flow of the Event-Based Revenue Recognition (1IL) scope item.

The diagram illustrates the roles of cost accountants in sales and overhead. The cost accountant in sales handles event-based revenue recognition and project work-in-progress (WIP) details reporting. This information is communicated to the cost accountant in overhead, who is responsible for project actual data reporting. The flow of data ensures accurate financial tracking and reporting of project-related costs and revenues.

Description

Event based Revenue Recognition calculates and posts real time revenue and cost adjustment for professional services for fixed price, time and material, and periodic service type projects. Processes that do not write a financial line item do not result in any real time revenue recognition postings (for example, changes of plan data do not directly result in revenue recognition postings) although some of these processes affect the recognition of revenue (for example, changes in plan data affect POC calculation and therefore the recognized revenue).

Period end closing postings (periodic revenue recognition) recalculates the recognized revenue considering all available data at the end of the period and adjusts the recognized revenue that was calculated in real time during the period based on events and on a "best guess" basis. Complete and final figures are then available after period end closing.

Batch processes are provided to review can automatically correct errors that may happen in the real time calculation of revenue and related financial postings due to a variety of factors.

The main principle supporting real time revenue recognition is the double journal creation in the system. All postings considered events for EBRR automatically generate a parallel revenue recognition posting in finance:

The diagram explains the financial integration process involving source documents, time confirmations, and revenue recognition within the SAP Universal Journal (ACDOCA). The source document is a CATS time confirmation for 1 hour of senior consultant work on a project WBS element. This confirmation posts through an accounting interface, creating a CO document and a revenue recognition journal entry. The CO document logs consulting activities with associated G/L accounts, activity types, quantities, amounts, cost centers, and WBS elements. The revenue recognition journal entry records revenue adjustments and WIP/accrued revenue, showing the financial impact of project work. Planned costs are €10,000, and planned revenue is €12,000.

Events that trigger recognition of revenue include:

Time postings via CATS
Activity allocations (not created from CATS)
Expense postings
Billing
Period-end runs

Note

Note that some events, such as price changes or changes in project plan, are not considered by EBRR to automatically update the revenue data and create parallel postings. Even though the project revenue position at any moment during the period is close to accurate, to ensure its full validity, the period end closing process is a necessary process step.

Key Process Steps

Execute event-based revenue recognition for projects.
Adjust revenue recognition.
Report project actual data.
Report project WIP details (relevant only for time and material projects).

Benefits

Change the underlying method of revenue recognition significantly (available in SAP S/4HANA).
Adjust for imminent loss, anticipated sales deductions, and unrealized costs.
Run a simulation to view important project KPIs via semantic tags.
Ensure correctness of posted values after period-end closing, with no separate settlement required.

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