Proposal For Custom Revenue Recognition

Proposal Summary 

This proposal outlines the development of a custom Revenue Recognition Reporting system for Growire, with the goal of improving their financial reporting process. The core of this solution is the creation of specific records and scripts that allow for accurate revenue recognition forecasting, especially at the line-item level for Invoice transactions. 

Requirement 

Growire has for the moment only sales invoices have been identified as candidate transactions for this flow. Growire is seeking a customized record structure for handling Revenue Recognition Reporting. 

Deliverable 

Our custom Revenue Recognition solution includes creating a custom record called “Revenue Recognition Forecast Schedule” to define the revenue recognition rules. Additionally, we will create another custom record named “Revenue Recognition Forecast Element” to display revenue forecast elements for transactions. The Scheduled script will be created for the automatic creation of the Revenue Recognition Forecast Element record. 

Revenue Recognition Forecast Schedule (Custom Record) 

A custom record will be created to define the Revenue Recognition forecast schedule.  This record will allow users to define various revenue recognition rules. Users can specify the revenue terms in Months/Days. 

The custom record will contain the following fields: 

1. Name – Free Form Text. 

  • Name of the Rev Rec Schedule. 

2. Rev Rec Method – List/Record 

  • The following Forecast method will be available.  
  1. Instant – No revenue recognition forecast elements to be created. 
  1. By Even Periods – The revenue will be split into each periods evenly. 
  1. Using Exact days – The revenue will be calculated based on the exact days in the Period. 
  1. By Even periods Except First & Last Periods – The revenue will be split evenly for each period. Except the First and Last Periods. The First & last Periods revenue will be calculated based on the exact days. 

3. Unit of the Terms – List/Record – Months/days. 

4. No of Terms – Integer. 

Invoice Form Additions: 

The invoice transaction forms will be modified to include fields for Rev Rec Start Date, Rev Rec End Date and Rev Rec Schedule. 

The Invoice transaction forms will be modified by adding the following fields: 

  • Rev Rec Schedule. 
              List/Record – Revenue Recognition Forecast Schedule (Custom Record) 
  • Rev Rec Start Date. 
             Type – Date. 
  • Rev Rec End Date. 
  • Type – Date. 
  • Display Type – disabled. 

Users are required to input values for the Rev Rec Start Date and Rev Rec Schedule Fields. Upon saving the invoice, the Rev Rec End Date field within the Invoice record will be automatically updated. This adjustment will only occur when the “Rev Rec Update” checkbox is marked in the Invoice record during the editing process. However, in the scenario where a new record is being created, the End Date values will be updated automatically. 

Revenue Recognition Forecast Element (Custom Record) 

A custom record will be created to display the Revenue forecast elements for transactions. This record will enable line-wise revenue forecasting, accommodating multiple item lines with different recognition start dates and rules including the Rev Rec Plan. 

Custom Record Body Fields: 

  • Rev Rec Element ID 
  • Invoice (Record is Parent)- List/Record – Invoices 
  • Invoice Title- Free-Form Text 
  • Invoice Status – List/Record – Entity Status 
  • Invoice Date – Date 
  • Invoice Total Amount- Currency (Always in subsidiary currency) 

Custom Record Sublist Fields:  

  • Item Line No- Integer 
  • ItemType: List/record – Item  
  • Item Line Amount – Sourced from the Invoice item line. – Decimal Number 
  • Rev Rec Start Date – Date 
  • Rev Rec End Date – Date 
  • Rev Rec Rule – List/record – Rev Rec Schedule Record 
  • Rev Rec Plan – List/record – Rev Rec Plan  

Revenue Recognition Forecast Plan (Custom Record) 

The Rec Rev Plan record will be created for each sublist of the Rec Rev Forcast element record. And it will linked to the Rev Rec Element record line level. This will have deatiled Revenue amount for the each accounting Period 

The Rev Rec Forecast Plan record will contain the following fields: 

Custom Record Body Fields: 

  • Rev Rec Plan ID 
  • Invoice – List/Record – Invoices 
  • Invoice Date- Date 
  • Item Line No -Integer 
  • Item – List/record – Item  
  • Item Line Amount – Decimal Number 
  • Rev Rec Start Date- Date 
  • Rev Rec End Date – Date 
  • Rev Rec Element Record – List/Record – Rev Rec element 
  • Rev Rec Rule- List/record – Rev Rec Schedule Record 
  • Unit of the Terms- List/Record – Months/days. 
  • No of Terms – Integer 

Custom Record Sublist Fields: 

  • Accounting Period – List/Record 
  • Percentage for the Particular Period. 
  • Amount for the Particular Period. 

Rev Rec Element Record Creation & Amount Calculation 

A scheduled script will be implemented to manage the creation and updates of the custom record “Revenue Recognition Forecast Element.” We will create a new checkbox field named “Rev Rec Update” in the Invoice record. This script is set to run every 30 minutes and will handle updates or creations of the Rev Rec element record in two scenarios: 

1. For newly created invoices within last 30 minutes. 

2. For invoices where the “Rev Rec Update” checkbox is checked. 

In case an invoice is edited, and the changes require an update to the Rev Rec Element/Plan, the user must check the “Rev Rec Update” checkbox on the invoice.  

If an invoice already has a Revenue Recognition Element, the script will perform updates to the existing element. If no such element exists, the script will generate a new record for the Revenue Recognition Element. 

Upon successfully updating the Rev Rec Element, the script will automatically uncheck the “Rev Rec Update” checkbox on the Invoice record. 

The script will only work on invoices that have Recognition Start Date and Rev Rec Forecast Schedule fields filled in line-wise. 

Each individual line of the Revenue Recognition Element corresponds to a Revenue Recognition Plan record. These plans go in detailed on the revenue recognition process, specifying amounts for each accounting periods. The calculations for these plans will be derived from the selected Revenue Recognition Schedule Record. 

In cases where an item line is removed from an invoice that has already undergone revenue recognition, the associated line within the Revenue Recognition Element will be eliminated. However, it’s important to note that the removed line will not be permanently deleted from the records. 

To accommodate existing open invoices, it’s possible to import the values for the “Rev Rec Start Date” and “Rev Rec Forecast Schedule” fields into the invoice records. For updating the Revenue Recognition element record, it’s imperative to activate the “Rev Rec Update” checkbox field within the relevant invoice record (can be done through CSV mapping itself). Moreover, during the CSV import process, ensure that the “Run Server-side Script” checkbox is also selected. 

The determination of the end date will be based on the start date and the precise count of months/days specified in the Revenue Recognition Schedule record. 

For Example: 

If an invoice has a start date on August 20, 2023, and the chosen Revenue Recognition method is “By Even Periods” set at 12 months, the conclusion date will fall on August 19, 2024. This duration will span 13 accounting periods, including August 2023 through August 2024. Each of these periods will represent 7.69% of the total. This calculation will be based on the NetSuite standard. 

For Using Exact days method, the percentage will be calculated as follow: (No. Of Days in the Month/ 365) * 100. The leap year will not be considered. 

Error Handling: 

During the background process, if any record fails to update, the script will generate a custom record entry. This entry is intended for your reference and will include the error details along with the corresponding Invoice record. 

Analytics Standard Report/Workbook 

To enhance decision-making capabilities, our solution includes comprehensive Standard Analytics Report/Workbook. These tools provide valuable insights into revenue complete Plan details, complete recognition start and end dates, and more, empowering your team to make well-informed financial decisions. The report will have following result columns: 

  • Invoice 
  • Invoice date 
  • Total Invoice Amount 
  • Item 
  • Rev Rec Schedule record 
  • Rev Rec Element record 
  • Rev Rec Plan record 
  • Rev Rec Start Date 
  • Rev Rec End Date 
  • Accounting Periods 
  • Percentage for the corresponding accounting Periods 
  • Amount for the Corresponding Accounting Periods. 

Assumptions 

The proposed solution is based on the following assumptions: 

  • The custom Revenue Recognition is only required for Invoice transactions. 
  • The proposed solution is purely for reporting purposes and does not create associated transactions. So, it won’t create any accounting impact on the system. 
  • The value of the “Accounting Period” field in the “Revenue Recognition Forecast Element” record will be sourced from the Invoice record. 
  • The Revenue Recognition Forecast Schedule needs to be created from your end according to the business requirement.  
  • The standard button in the custom record will not be removed. 
  • The existing open invoices data import will be performed from you end. 
  • The Rec Rev Element/Plan records will not be editable via UI. 
  • No validation was considered in the Rev Rec schedule record creation. 

Risks 

  • Revenue Recognition Forecast elements will be created only for lines with values in the Rev Rec Start Date and Rev Rec Forecast Schedules fields. 

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