Event-Based Revenue Recognition with Customer Projects in SAP S/4HANA Cloud
Event-based revenue recognition covers the service industry’s comprehensive revenue recognition capabilities, especially the requirements for easy-to-use applications that support streamlined year-end closures that cover the legal functions required.
The assumption is that the results analysis includes time and materials and the revenue identification capabilities of customer projects with fixed-price agreements. In the results analysis, the calculated values are stored in separate revenue identification persistence and must be year-ended in accounting and CO-PA. Adjusting different applications (G/L, revenue recognition, and CO-PA) requires additional steps. The use of results analysis profitability information is provided only after the end of the year.
Event-based revenue recognition is built into journal entries in global journals and does not have individual persistence, so no settlement effort or settlement is required. The results of the calculations are immediately visible in the general ledger, similar to the original posts for customer items, such as time checking. The Revenue Identification G/L line project already contains market segment information using the new profitability built into the global magazine. In other words, the settlement of a customer project is out of date as a step in the year-end process.
An important feature of event-based revenue recognition is that it essentially supports the matching principle for all positions. The corresponding revenue identification journal entries are created in real time for each cost and revenue release. This enables up-to-date Polaroid and profit reports (and WIP).
Event-based revenue recognition is fully integrated with the general ledger. Determine where the data is stored in the same location for cost and revenue data.
This integration frees you from the limitations imposed by regular processes. The cost and revenue information available for analysis is always adjusted and out-of-the-available, regardless of the day of the month.
Adjusted by design
There is only one limitation in the system – through Globe Magazine’s revenue recognition. (G/L, CO, results analysis, and CO-PA may have different sources and data tables and display different values.) The principle of matching is inherently supported, so reports are kept up-to-date. Work was not required to be closed during revenue recognition and settlement. The cost matches the revenue every time.
Help you manage decisions in a timely manner
Each project and segment, such as customer groups, sales organizations, and portfolios, provides an up-to-date report with profits after release. In addition, the rightmost tile can use profit centers, origin (support) profit centers, and resource types to obtain margins.
New report insights
Develop deeper G/L accounts, such as project revenue and WIP, and profitability attributes such as customer and product groups.
- Simplify year-end closing and support faster closing
- Balance sheet and profit and loss statement reports based on individual journal entries
- WIP drill-down by segment
- Improves the ability to analyze revenue recognition values, such as deep access to G/L projects and references to source documents. This improves transparency in the calculation of revenue recognition positions and reduces audit work.
- Reconciliation between revenue identification data and G/L is not required
- Reproducibility – for example, if the contract data is incorrect when recognizing revenue
- Real-time profit margin report for each project and multiple segments
- You can view profitability views for multiple new attributes, such as employees, resources, and service products
- For revenue-aware customer project plan revenue, planned revenue is calculated over an accurate period and can be used for forecasting
- Target revenue is calculated and released in a fixed price scenario
- Real-time project margin reporting
- Always provide project and employee-level WIP/undying revenue information (basic information about the project to be invoiced)
Principles of real-time matching to always provide current revenue reports
Revenue recognition posts are generated at the same time as the source document and stored directly in accounting.
Input to the source file, such as time checking or expense posting, creates two separate log entries.
Journal entry for the initial source document. Here is the “CO” file, check the time.
Matching revenue identification log entries. Here, the realized revenue is calculated based on poc (percent of achievement) (actual costs broken by planned costs) and posted in revenue recognition G/L account revenue adjustments.
Event-based revenue recognition is highly integrated into logistics processes
For each customer line, an order is assigned and an order line is assigned to each WBS invoice element. The sales order line defines the customer agreement and determines how revenue is recognized. All information related to the contract is stored on the sales order. Revenue recognition does not include individual persistence and helps avoid settlement issues. When you create a sales order project or contract, you already have the data you need to recognize revenue.
Event-based revenue recognition enables streamlined cloud configuration
As discussed in the financial information in Customer Project Blog 1, the cloud has clear guidance and subsequent consistency checks to implement customer project setup and enable immediate revenue recognition releases and profitability segments.
An important aspect is the 1:1 relationship between the order line and the WBS billing element. This allows you to clearly define revenue identification keys and methods based on sales order lines.
In addition, only one profit center is provided in a single billing component tree that can be maintained at the billing element level.
Customer projects can only be published if all work packages are assigned to project billing elements. This ensures that all data is used to identify revenue when recognition hits the work package.
Fees are always listed on the working package. Revenue recognition takes into account all posts in the WBS billing element tree. Calculated revenue identification values are issued as revenue adjustments (P&L) and WIP/over-revenue for billing elements.
Provide best practice content in the S/4HANA cloud. This provides out-of-the-available revenue recognition and publishing for each customer project and assigned post.
Only three contract types can be offered – S/4HANA 1905 cannot be extended or modified by the customer. For these contract types, all relevant applications support end-to-end processes.
Because business stories define how processes are evaluated and revenue is identified, there are a lot of custom activities open to users, primarily to derive customer preferred G/L accounts.