You can create invoices that span over several accounting periods. The accounting rule determines the accounting period in which the revenue distributions for the invoice or the Invoice lines are stored. The invoicing rule determines the accounting period in which the receivable amount is stored. You can either manually assign invoicing and accounting rules to transactions you create or import these rules into Receivables using the Auto Invoice utility.
You can also use the accounting rules to determine revenue recognition schedules. The duration over a predefined number of periods and variable duration lets you define the number of periods during invoice entry.
The invoicing rules determine when to recognize the receivables for invoices that span over multiple accounting periods. There are two types of invoicing rules, bills in advance and bills in arrears.
Bills in Advance:
The bills in advance rule is used to recognize the receivables at the time when the bill is raised. It is an invoice created before the revenue is recognized.
For example, if your company provides services and has to enter into a contract for the next three months, then you should recognize revenues in that particular month even though you may have received the payment when you started the service. The invoice raised is a bill in advance and revenue is recognized in the months ahead. For example, in April you raise an invoice of $1,500 for a three-month contract. The Accounting rule is three months fixed duration. The entries passed for this invoice are:
In April, when the invoice is raised, the receivable account debit is $1,500 and the unearned revenue credit is $1,500. When Revenue is recognised for the month of April The unearned revenue debit is $500 and the revenue credit is $500.
In May, when the revenue is recognised , the unearned revenue debit is $500 and the revenue credit is $500.
In June, when revenue is recognised, the unearned revenue debit is $500 and the revenue credit is $500.
Bills in Arrears:
You use the bill in arrears rule if you want to record the receivables at the end of the revenue recognition schedule.
For example, for the invoice of $1,500 raised for a three-month contract, the accounting entries passed are:
In April, when the revenue is recognised, the unbilled receivable debit is $500 and the revenue credit is $500.
In May, when the revenue is recognised, the unbilled receivable debit is $500 and the revenue credit is $500.
In June, when the revenue is recognised, the unbilled receivable debit is $500, the revenue credit is $500, the receivable debit is $1,500, and the unbilled receivable is $1,500.
You need to run the revenue recognition program to generate the revenue distribution.
| Note | If the GL date for a transaction is in a period that has a status of either Closed or Close Pending, then Revenue Recognition changes the revenue GL date to the first subsequent period that has a status of Open, Future, or Not Open. |
Accounting Rules:
We can setup as many rules as required to cover our various business scenarios involving how you want to recognize revenue.
we have a seeded Accounting Rule named Immediate. This Accounting Rule is provided by Oracle. The only field we can modify here is the Period type, and we should ensure that the value here matches the Period type used by our Ledger.
Navigation:
Responsibility: Receivables Manager
Navigation: Setup > Transactions > Accounting Rules
Below is the form used to do the Accounting Rules setup.
Following describes each of the fields in the above form:
Name:
Enter a unique and descriptive name for your Accounting Rule
Description:
Enter text that describes this Accounting Rule
Type:
You have 4 options for Rule type
Fixed Schedule (formerly Fixed Duration), this type prorates 100% evenly across the Number of Periods you specify
Variable Schedule (formerly Variable Duration), this type allows you to later specify, during invoice data entry, the number of periods over which you want to recognize revenue.
Daily Revenue Rate, All Periods, this type will use a daily revenue rate to calculate the precise amount of revenue for all periods whether it is full or partial. Use accounting rules of this type to meet strict revenue accounting standards which require accurate revenue recognition on a per-day basis.
Daily Revenue Rate = Total Revenue / Total Number of Days across all periods
Daily Revenue Rate, Partial Periods, this type is a hybrid between Fixed Schedule and Daily Revenue Rate, All Periods. It will use a daily revenue rate to calculate the precise amount of revenue for the partial periods in the schedule, then prorate the revenue evenly across the full periods.
Partial Period is when the invoice exists for only part of the period as opposed to all days within the period
Period:
This corresponds to the Period types you defined in Oracle General. Keep in mind that during data entry of the invoice lines, you can only use Accounting Rules that have the same Period as your Ledger. In addition to period types you've defined you can also pick Specific Date, which enables you to enter a specific date in the Date field in the Schedule section discussed below.
Number of Periods:
Enter the number of periods you want this accounting rule to recognize revenue across.
Deferred Revenue:
If you want to delay recognizing revenue, check this check box. When checked, invoices using this rule will have its revenue deferred to an unearned revenue account, and you must later use the Revenue Accounting Management (RAM) wizard to recognize the revenue.
Invoices that use a Deferred Rule, will not appear in the Revenue Recognition Report, until Revenue is Scheduled via the Revenue Accounting process.
Responsibility: Receivables Manager
Navigation: Control > Accounting > Revenue Accounting
Schedule Section:
Period: Specify the sequence of the Period starting with 1.
Percent: Indicate the percent of the revenue you want to recognize in this period. Total Percent across all periods must equal 100% for Fixed Schedule types. For Variable Schedule types, you are allowed to define the percentage for the first period, which is typically less than 100%.
Date: Enter a specific date, e.g. 10-JUN-2010, this field is only enabled if the Period you specified in the header section is Specific Date
Notes:
If you pick Type = Fixed Schedule, the Schedule section is automatically populated for you with as many rows as you specified in Number of Periods, and the percentage will be evenly spread across all periods to sum up to 100%.
If you pick Type = Variable Schedule, you do not need to enter any details in the Schedule Section. However, if you want to recognize a specific percentage of revenue in the first period, you can enter Percent details for Period 1. The remaining percentage will be spread across the remaining periods you specify during transaction data entry
Revenue recognition principle is an important accounting principle, which is the main difference between cash basis accounting and accrual basis accounting. In cash basis accounting revenues are simply recognized when cash is received no matter when and how the services were performed or goods delivered. In accrual basis accounting revenues are recognized when they are (1) realized or realizable and (2) earned no matter when cash is received.
Invoicing Rules and Accounting Rules:
NOTE : Both Invoicing Rules and Accounting Rules are attached to the header of the order
In Oracle AR, the invoicing and accounting rules help create invoices that span several accounting periods. Accounting rules determine the accounting period or periods in which the revenue distributions for an invoice line are recorded. Invoicing rules determine the accounting period in which the receivable amount is recorded.
Accounting Rules:
Accounting rules determines revenue recognition schedules for invoice lines. Different accounting rules can be assigned to each invoice line. Using Accounting rules, the number of periods and the percentage of the total revenue to recognize in each period can be specified. Also accounting rules can be Fixed or Variable Duration.
Clients can also create rules that will defer revenue to an unearned revenue account. This helps in the delay of specifying the revenue recognition schedule until the exact details are known. When these details are known, clients use the Actions wizard to recognize the revenue.
Creating Accounting Entries:
• Accounting distributions are created only after the Revenue Recognition program is run.
• For Bill in Advance, the offset account to accounts receivable is Unearned Revenue.
• For Bill in Arrears, the offset account to accounts receivable is Unbilled Receivables.
• Accounting distributions are created for all periods when Revenue Recognition is run.
Running The Revenue Recognition Program:
• The Revenue Recognition program gives control over the creation of accounting entries.
• Submit the Revenue Recognition program manually through the Run Revenue Recognition window.
• The Revenue Recognition program will also be submitted when posting to Oracle GL.
• The program processes revenue by transaction, rather than by accounting period.
• Only new transactions are selected each time the process is run.
