Name: An Introduction to Event-based Revenue Recognition - SAP S/4HANA Financials
Uploaded: 2022-6-10
Duration: 456 s
Description: In this microlearning you will learn about the basics and benefits of event-based revenue recognition

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<div>In this microlearning you will learn about the basics and benefits of event-based revenue recognition</div>

An Introduction to Event-based Revenue Recognition - SAP S/4HANA Financials

Hello and welcome to this microlearning for SAP S/4HANA Cloud for Finance. My name is Johannes Haselmayer I work as a consultant in the S/4HANA Cloud MEE team. In this video, I will introduce event-based revenue recognition. This microlearning will  cover the following parts. First, I want to give a general overview of what event-based revenue recognition is and explain the guiding principles behind it. Then I will cover the scenarios of event-based revenue recognition which are supported in S/4HANA Cloud. Before, we will take a look at the different revenue recognition methods which are supported. In this part we will also take a look at an example of a posting logic. And to sum it up, we will look at the key benefits of revenue recognition for you as a customer. The reason why revenue recognition was introduced is mainly to allow proper margin reporting according to specific periods. If you imagine a cost posting for a sales order happening in June, the respective revenue is being built in July, you quickly start to realize that margin reporting would deliver weird results having to follow costs in June without any revenue and all the revenue without any cost in July. So to allow proper margin reporting, the general principles of revenue recognition is that revenue and cost are recognized simultaneously. If we think about a scenario just like a sales order which I just mentioned, usually we have a cost posting and a revenue posting within the scenario. And as we've just learned, the general principle is that cost and revenue are recognized at the same point in time. But now you might ask yourself, at which point in time are cost and revenue recognized. And this question can be answered by looking at different revenue recognition methods, which I will further explain in a couple of minutes. First of all, let us take a look at the scenarios which are currently supported in S/4HANA Cloud. We're currently looking at five different scenarios for which we provide three scope items, each according to the accounting principles. The five scenarios are customer projects, which cover a professional services bundle of S/4HANA Cloud, sales orders which are being sold from stock, service documents which cover service contracts as well as service orders. The project-based sales scenario, which looks at projects with revenue within a sales order within enterprise portfolio and project management. And then last but not least, provider contracts, which refers to the subscription billing scenario. A minute ago I promised to further explain revenue recognition methods as those will give an implication on the point in time where revenue and cost are recognized. What is important to understand in this context is that the way how revenue and cost are recognized is derived from a so-called revenue recognition key. This revenue recognition key is assigned to specific revenue recognition method, which incorporates the calculation logic of how revenue and cost are recognized. S/4HANA Cloud delivers multiple revenue recognition methods. Very popular is, for example, the cost-based percentage of completion. Let's take a closer look at the posting logic of this method with an example of a project-based sales scenario. The project that we're looking at has planned costs of 600 US dollars and planned revenue of 1000 US dollars. In the first step, cost of 300 US dollar is posted under project. Cost-based percentage of completion means in the first place, that revenue will be recognized simultaneously to the cost posting. Therefore, the system automatically triggers a second posting. Consequently to the first posting. And how much revenue is being recognized. Cost-based percentage of completion means that we now calculate how much of the plant costs of the project have been completed. So we are dividing the 300 US dollars of actual costs by the 600 US dollars of planned costs. This leads us to a percentage of completion of 50 percent, which means that 50 percent of the planned revenue, so 500 US dollars, can be recognized via the revenue adjustment GL Account. In the second step, the full invoice for this project is being sent out. If revenue is already recognized with the cost posting, the invoice will not have any effects on the P&L side as the built revenue will be deferred immediately. So not mess up the balance sheet side with high values of accruals and deferrals the period end closing in the third step, where net accruals and deferrals. Let's sum up the benefits of revenue recognition that we have learned so far. Revenue recognition is incorporated in the universal journal, which means all revenue recognition data is stored in the same technical table, which is ACDOCA Therefore, revenue recognition can process all information from ACDOCA in real-time, which will make you benefit in the area of reporting. If we look at an initial posting in a revenue recognition scenario, no matter being it cost or revenue, revenue recognition will always trigger a second Automatic Posting, which is an accrual or deferal posting. With this procedure, it can be ensured that revenue and cost are not only recognized simultaneously, but also without any manual efforts. Furthermore, revenue recognition also gives you full transparency as it allows drill down on GL accounts and profitability attributes. Let's summarize the key learnings. You have understood the guiding principle of revenue recognition, that it is important to allow proper margin reporting in your company. You have learned how our revenue recognition key is derived for specific scenarios. And the key benefits around automatic accrual and deferral postings, which allow real-time reporting, are clear to you. For more knowledge on SAP S/4HANA Cloud, please check out the offering  of openSAP courses and learning journeys on the respective websites. If you are interested in more details under configuration settings which you need to take a look at during an implementation. Please also take a look at the configuration settings in event-based revenue recognition microlearning, and a detailed SAP Help documentation. Thanks and goodbye.