Understanding Process Steps and Business Roles for Event Based Revenue Recognition

Learn how to understand business roles and process steps for event-based revenue recognition in SAP S/4HANA Cloud. Discover the key roles involved, the execution process, and the integrated apps for accurate financial reporting.

System users running the sales order processing and billing sub-processes need to have the following authorization roles assigned to their business users:

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

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.

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

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.

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

• 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:

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.

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

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.

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.

The figure displays the Projects Actuals app.

The figure displays the Display Project WIP Details app.

This application supports the detailed analysis of the 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.

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.