Introducing Event-Based Revenue Recognition

Objectives
After completing this lesson, you will be able to:

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

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

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:

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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