Revenue recognition schedule - How revenue is distributed for an individual customer
On a customer’s record, you will see a section called Revenue Recognition Schedule, which by default reports the recognized revenue from the customer for each month. When you click Show detail, you can see the invoices and line items that contributed to the calculation for each month.
This article illustrates how the different types of revenue and transactions are represented in the schedule.
It is worth noting that regardless of your selected settings, revenue is not recognized before the start of its relevant service period, even if has been invoiced and paid before its start.
Representing subscriptions and one-time fees
Revenue is recognized differently depending on whether it comes from having provided a subscription or a one-off service. The recurring revenue is spread across the service period of the subscription, and one-off fees are recognized on the month they were issued. This is illustrated in the example below, where the €245 from the 'Silver Quarterly' is spread across August to November, whereas all of the one-time sign up fee is recognized in August.
Discounts generate a separate negative line item, which is distributed across the same service period as the subscription it was applied to. This can be seen in the example below, where a $100 dollar discount has been applied to a Gold Subscription. Note that although the line item total for both the subscription and discount remains constant across service periods, their distribution across months varies. This is because the length of each service period fluctuates with the number of days in the months in question.
Depending on the type of credit (or additional balance) given to a customer, it may also be treated the same way as discounts. This is the case when a goodwill balance has been given to a customer by the vendor, which is essentially a discount.
The alternative scenario in which credit may be added is when a customer switches to a differently priced plan in the middle of a service period. As can be seen in the screenshot below, the switch from the original plan creates two new line items within the revenue recognition schedule. The first is a positive line item corresponding to the amount charged for the new plan for the remainder of the service period already in progress. The second line item pertains to credit given to the customer, which offsets the amount paid for the unused time on the original plan.
Refunds are displayed consistently with your chosen recognition strategy but are influenced by both their size and when they are issued. Refunds are processed in one of three ways.
- If the value of the refund is smaller or equal to the sum remaining for that service period, then it will be spread out across the remaining time in the service period (and in accordance with your selected revenue recognition strategy).
- If the value of the refund is larger than the sum remaining for that service period, then the amount corresponding to the remaining revenue will be spread out as listed above, and the amount in excess is recognized at the time the refund took place.
- If a refund is provided after the service period it relates to, then all of its value is recognized at the time it took place.
Scenario 1. and 3. can both be seen illustrated in the screenshot below. The customer in January 2018 had three line items, two of which are refunds. The first refund offsets perfectly the Base Plan line item issued in January, as it is equal in size and duration. In contrast, as the second refund pertains to the preceding service period (i.e. Dec 10, 2018 - Jan 10, 2018), all of it ($59) is recognized at the point it was issued.