Revenue recognition is an important feature in accounting software for any company that either sells contracts or provide services that are fulfilled throughout the year. To be GAAP compliant, you must recognize revenue when work is completed, not when bills are sent and paid. So it is referred to as Deferred Revenue.
There are specific industries where revenue recognition is especially important. For example, an alarm company that sells a three year contract and is paid the first year up front. There is revenue that comes in at the time the contract was signed but you can’t recognize all that revenue at once, because you are really being paid for 12 months. So there must be a way, in your accounting system, to define when the revenue will be recognized.
Here are a few more examples of clients we work with are:
- An HVAC heating and cooling company that sells a 12 month contract to service equipment.
- An insurance company that issue policies for multiple years.
- A software company with annual support contracts.
In each of these cases the money collected needs to be spread out of the year and recognized on a monthly basis.
If the revenue is not recognized correctly, the financial statements are not accurate. And you can have problems with the IRS because your tax reporting would not be accurate either.
You need to select an ERP system that makes deferred revenue recognition simple and straightforward.
In my opinion, Acumatica ERP does a very nice job with revenue recognition. And it is built into the core system, it is not an add-on tool by a separate company. Although it is an added cost, available in the Enterprise Edition. A few important features of the Acumatica Deferred Revenue Accounting feature are:
- Deferred Revenue Administration
Create revenue recognition templates and assign them to line items on revenue transactions. A template can specify start date, recognition method, percentage to recognize immediately, number of occurrences, and time within the period to generate transactions. Templates can be linked to accounts, sub-accounts, and inventory components.
- Component Based Revenue Recognition
Divide inventory items into component parts to apply different deferrals within a single inventory item. Use this feature to automate revenue recognition for items with included warranties or other complex situations.
- Deferred Revenue in Multiple Currencies
Deferred Revenue Management is completely integrated with all other Acumatica functionality, including currency management.
- Advanced Recognition Scheduling
Schedule revenue recognition to occur at the start of a financial period, the end of a period, or on a fixed day during each period. Create recognition documents each period or skip periods.
- Automated Reporting
Predefined reports can be customized using the Acumatica Report Designer.
- Audit Trail
Deferred Revenue Management is linked to all other modules to provide a complete audit trail of all deferred revenue and expense transactions. The system keeps the details of all scheduled transactions, including the user who entered the transaction and the user who modified the record.
Revenue Recognition goes hand in hand with project accounting. Both are included in Acumatica ERP. Check out this detailed article: Technical Tuesday: Project Accounting and Revenue Recognition
Read more about Deferred Revenue Accounting in Acumatica ERP.
If you are evaluating ERP/accounting software and would like to know more about revenue recognition in Acumatica and Microsoft Dynamics GP, contact CAL Business Solutions. 860-485-0910 x4 or email@example.com
By George Mackiewicz, CAL Business Solutions, www.calszone.com/acumatica