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Unbilled revenue

This article describes the unbilled revenue feature that you use to include the amounts for entire billing schedules on the balance sheet. Include these amounts in an unbilled revenue account and an unbilled revenue offset account, and bill the contract through installments.

Set up unbilled revenue

To set up unbilled revenue, follow these steps:

  • On the Recurring contract billing parameters page, set the fields in the Unbilled revenue section.
  • Use the unbilled revenue feature for items where the Item type field is set to Standard. You can also use it for deferral items. To use unbilled revenue with the short-term functionality, set up the short-term options on the Recurring contract billing parameters page.

To set up items to use unbilled revenue, follow these steps:

  1. On the Unbilled revenue setup page, on the Items tab, select Add.
  2. On the new line, in the Item code, select the item code.
  3. In the Item relation field, select the item relation.
  4. Repeat these steps to add more lines.
  5. Select Save.

To set up items and the unbilled revenue accounts, follow these steps:

  1. On the Unbilled revenue setup page, on the Accounts tab, select Add.
  2. On the new line, in the Item code, select the item code.
  3. In the Item relation field, select the item relation.
  4. Select the accounts for the unbilled revenue, unbilled discount, and unbilled revenue offset. To use the short-term accounts, set the Short-term unbilled method field to Rolling periods or Fixed year on the Recurring contract billing parameters page.
  5. Repeat these steps to add more lines.
  6. Select Save.

Use unbilled revenue

  1. On All billing schedules, create a billing schedule.
  2. If the item isn't yet set up to use unbilled revenue, select the Unbilled revenue checkbox on the billing schedule line.
  3. Set the Unbilled revenue option to Yes. Then review and edit the unbilled revenue, discount, and unbilled revenue offset accounts as required.
  4. On the billing schedule, under Unbilled revenue processing, select Create journal entry to create the initial journal entry for unbilled revenue. You must complete this step before the billing schedule is invoiced.
  5. After the initial journal entry is created, select Generate invoice to create sales orders and post the invoices for the billing schedules.
  6. After the invoices are posted, you can review the audit information on the Renewals tab of the All billing schedules page.

Milestone billing

Milestone billing works with unbilled revenue under the following conditions:

  • If the milestone parent item is unbilled (the Unbilled revenue checkbox is selected), and the milestone child items are billed (the Unbilled revenue checkbox is cleared), you must specify the start and end dates for the parent item. These dates are used to create the initial journal entry.
  • If the milestone parent item is billed (the Unbilled revenue checkbox is cleared), and the milestone child items are unbilled (the Unbilled revenue checkbox is selected), you must specify the end date only for the child items that you want to create the initial journal entry for.

You can process each milestone child item separately. You can specify the end dates when you're ready to create the initial journal entry.

Note

If the initial journal entry for the milestone parent item or child items is already created, or an invoice is created, you can't edit the start and end dates.

Unbilled revenue with straight line deferrals

To use unbilled revenue with straight line deferral schedules, follow these steps:

  1. On All billing schedules, create a billing schedule.

  2. Add an item to the billing schedule lines.

  3. Select Deferrals for the line.

  4. On Transaction deferral, follow these steps:

    1. Set the Deferred option to Yes.
    2. Change the accounts as you require.
    3. In the Schedule section, select Straight line, and edit other values as you require.
    4. Select OK.

  5. Select Unbilled revenue for the line, and then follow these steps:

    1. Set the Unbilled revenue option to Yes.
    2. Select the accounts to use for the revenue, discount, and revenue offset.

  6. On the billing schedule, under Unbilled revenue processing, select Create journal entry. Alternatively, use the Unbilled revenue mass processing page to create the journal entry.

  7. The deferral schedule is created. You can review the details on All deferral schedules. After the deferral schedule is created, you can edit various values for the billing schedule line item. For example, you can edit the unit price, quantity, or dates.

Unbilled revenue with event-based deferrals

To use unbilled revenue with event-based deferral schedules, follow these steps:

  1. On All billing schedules, create a billing schedule.

  2. Add an item to the billing schedule lines.

  3. Select Deferrals for the line.

  4. On Transaction deferral, follow these steps:

    1. Set the Deferred option to Yes.
    2. Change the accounts as you require.
    3. In the Schedule section, select Event based, Template, Allocation type, and Expiration account.
    4. Select OK.

  5. Select Unbilled revenue for the line, and then follow these steps:

    • Set the Unbilled revenue option to Yes.
    • Select the accounts to use for the revenue, discount, and revenue offset.

  6. On the billing schedule, under Unbilled revenue processing, select Create journal entry. Alternatively, use the Unbilled revenue mass processing page to create the journal entry.

  7. The deferral schedule is created. You can review the details on All deferral schedules. After the deferral schedule is created, you can edit various values for the billing schedule line item. For example, you can edit the unit price, quantity, or dates. The deferral schedule is recalculated based on the new values.

The distributions are recalculated based on the allocation type that you select (Percentage, Percentage completion, or Equal amounts). For the Variable amounts allocation type, the distribution is recalculated based on the percentage equivalent of the initial value for the event. For example, the original unit price is $100.00, and the percentage of the initial value is $55.00 (55 percent). If you change the unit price to $200.00, the variable amount of the event becomes $110.00 (still 55 percent).

Note

If you recognize deferral schedule lines, you can't edit the billing schedule line item. To edit the line item, you must first reverse the recognized lines. You can then update the billing schedule line.

Unbilled revenue and top billing

Enter a billing schedule for three years, and bill the invoices annually over the three-year period. Record the whole contract amount in the unbilled revenue account that annual invoices are created from. The offset account is the revenue or deferred revenue account.

Top billing and unbilled revenue don't work together, because reconciliation problems can occur in the general ledger. For example, on the Item group setup page, you set up item group A so that the Number of top lines field is set to 2. On the Billing schedules page, you add three items. All three items belong to item group A. When you create the initial journal entry for the unbilled revenue feature, the amount for all three items is processed to the unbilled account. When you create the invoice for the billing schedule, you include only the amounts for the top two items. Therefore, the invoice amount doesn't match the amount that you processed to the unbilled revenue account, and reconciliation problems occur in the general ledger.

If you want to use unbilled revenue, leave the Item group setup page blank, or set up all item groups so that the Number of top lines field is set to 0 (zero). If you want to use top billing, no unbilled revenue actions are available.

Examples

Starting with version 10.0.29, Recurring contract billing parameters includes a new parameter. When you set this parameter to Yes, the Use unbilled offset accounts parameter enables two new accounts in Unbilled revenue setup. The Unbilled revenue offset and Unbilled discount offset accounts become available and are best used when billing schedules are created in a currency other than the accounting currency. By using the offset accounts, you ensure that the unbilled revenue and unbilled discount accounts are reversed out by using the same exchange rates as their initial entries. The initial Create journal entry process is the same with the debit to unbilled revenue and credit to revenue. If you use a discount, the initial journal entry is the same with a debit to Discount and credit to unbilled discount.

This example shows how to use unbilled revenue to recognize the whole amount of a contract on the balance sheet as unbilled revenue. The other side of the entry is the revenue or deferred revenue. When you invoice the customer, the unbilled revenue is reversed. Revenue recognition occurs either at the time of invoicing or according to the deferral recognition schedule that you set up.

Assumptions

  • On January 1 of the current year, a customer signs a three-year contract for $390.
  • The contract includes two parts: licenses and a maintenance agreement.
  • The sales price of the license fee is $300, and the customer is invoiced $100 on January 1 of each contract year. The $300 license fee is taken as revenue when the contract is signed.
  • The sales price of the maintenance fee is $90, and the customer is invoiced $30 on January 1 of each contract year. The $90 maintenance fee is deferred, and $2.50 is recognized each month of the life of the contract.
  • The customer is invoiced $130 at the beginning (January 1) of each of the three years of the contract.

Steps

  1. Set up the two released items as unbilled items. Use the Unbilled revenue setup page to set up the items and accounts that use unbilled revenue.

  2. In this example, the maintenance fee is deferred. The item requires a deferral template, which you set up on the Deferral templates page. The template has a Monthly period frequency and a recognition period length of 36 months. Therefore, the revenue per month is $2.50.

  3. On the Items deferred by default page, set the Maintenance fee field to Deferrable item. This step and the next step cause the maintenance fee item to be deferred when it's sold or included on a billing schedule.

  4. Select Deferral defaults > Template, and add the item for the maintenance fee and the straight-line template from step 2. The maintenance fee item is linked to a 36-month deferral schedule.

  5. Create a billing schedule that includes the two unbilled items. Set up the billing schedule for the contract with the following items.

    Item Start date End date Amount Billing frequency Deferral item Unbilled revenue Description
    License January 01, 2022 December 31, 2024 $100.00 Annually No Yes The customer is invoiced $100.00 each year. The $300.00 total is recorded up front as unbilled revenue on the balance sheet, and as revenue on the profit and loss. Each invoice reduces the unbilled amount.
    Maintenance January 01, 2022 December 31, 2024 $30.00 Annually Yes Yes The customer is invoiced $30.00 each year. The $90.00 total is recorded up front as unbilled revenue and deferred revenue on the balance sheet. Each invoice reduces the unbilled amount. The deferred revenue is recognized monthly over 36 months.

  6. On the All billing schedules page, use the Create journal entry process to post the contract value to the balance sheet as unbilled revenue.

Two journal entries are created, one for each line on the billing schedule.

Account Debit amount Credit amount
Unbilled revenue account $300.00
Revenue account $300.00
Account Debit amount Credit amount
Unbilled revenue account $90.00
Deferred revenue $90.00

The contract requires that the invoice for the customer be created at the beginning of each year. Use the Generate invoice process to create the invoice. When the invoice is created, the following invoice voucher is posted.

Account Debit amount Credit amount
Unbilled revenue account $130.00
Accounts receivable $130.00

This same journal entry is created by invoices that are posted at the beginning of the next two years. The Unbilled revenue account is reduced each year during the Generate invoice process. The Unbilled revenue offset account is used to balance the unbilled revenue account when different exchange rates are used.

In the last step, the recognition journal entry is created each month to recognize the deferred revenue from the maintenance fee. The journal entry can be created by using the Recognition processing page. Alternatively, it can be created by selecting Recognize for the lines on the Deferral schedule pages.

Main account Debit amount Credit amount
Deferred revenue $2.50
Revenue $2.50

This journal entry is created each time that the recognition process is run for this deferred item (a total of 36 times).

Short-term: Fixed year

You can use unbilled revenue together with the short-term functionality by setting the Short-term unbilled field on the Recurring contract billing parameters page. The following example shows the calculations that are done when unbilled revenue is used together with Fixed year short-term unbilled method.

You create a billing schedule that has the following criteria:

  • Start Date: June 1, 2020
  • End Date: December 31, 2021
  • Unit Price: $100
  • Frequency: Monthly

On the All billing schedules page, the Create journal entry process creates the initial journal entry. The system calculates the current short-term and long-term amounts in the following way:

  • Current short-term unbilled revenue amount: $700
  • Current long-term unbilled revenue amount: $1,200

You create the invoice for the billing period from June 1, 2020, through November 30, 2020. The system calculates the current short-term and long-term amounts in the following way:

  • Current short-term unbilled revenue amount: $100
  • Current long-term unbilled revenue amount: $1,200

You create the invoice for the billing period from December 1, 2020, through December 31, 2020. The system calculates the current short-term and long-term amounts in the following way:

  • Current short-term unbilled revenue amount: $1,200
  • Current long-term unbilled revenue amount: $0

Short-term: Rolling periods

You can use unbilled revenue together with the short-term functionality by setting the short-term unbilled method on the Recurring contract billing parameters page. The following example shows the calculations that are done when unbilled revenue is used together with the Rolling periods short-term unbilled method.

You create a billing schedule that has the following criteria:

  • Start Date: June 1, 2020
  • End Date: December 31, 2021
  • Unit Price: $100
  • Frequency: Monthly

On the All billing schedules page, the Create journal entry process creates the initial journal entry. The system calculates the current short-term and long-term amounts in the following way:

  • Current short-term unbilled revenue amount: $1,200
  • Current long-term unbilled revenue amount: $700

You create the invoice for the billing period from June 1, 2020, through November 30, 2020. The system calculates the current short-term and long-term amounts in the following way:

  • Current short-term unbilled revenue amount: $1,200
  • Current long-term unbilled revenue amount: $100

You create the invoice for the billing period from December 1, 2020, through December 31, 2020. The system calculates the current short-term and long-term amounts in the following way:

  • Current short-term unbilled revenue amount: $1,200
  • Current long-term unbilled revenue amount: $0

Items with revenue allocation

Add two items with different billing frequencies to a billing schedule. Both items use unbilled revenue and are deferrable items.

  • Item number 1000: Surface Pro 128GB

    • Billing frequency: One time
    • Unit price: $1,500
    • Standalone selling price: $1,600
    • Contract revenue: $1,465.26

  • Item number S0021: Insurance that is sold together with item number 1000

    • Billing frequency: Monthly for 12 months
    • Unit price: $20 per month
    • Standalone selling price: $25
    • Contract revenue: $264.74

Because both items use unbilled revenue and revenue allocation, the total contract amount on the renewal line is 0 (zero). Add the Contract revenue column to show the contract revenue amount.

The following table shows the initial journal entry for the items and the invoice.

Main account Debit amount Credit amount
Item 1000 journal entry
Unbilled revenue account (401250) $1,465.26
Deferred revenue account (250600) $1,465.26
Item 0021 Journal entry
Unbilled revenue account (401250) $274.74
Deferred revenue account (250600) $274.74
Invoice
Unbilled revenue account $1,465.26
Unbilled revenue account $274.74
AR account (130100) $1,488.16

Changes to the billing schedule line, billing detail line, or revenue allocation

When you change the unit price or quantity, update the contract revenue amount for each item that is part of the revenue allocation. Recalculate the journal entry.

For example, you change the unit price for item 1000 from $1,500 to $1,600. In this case, the contract revenue amount is automatically recalculated as $1,549.47. The contract revenue for item S0021 is recalculated as $290.53.

When you confirm and commit the change, reverse the initial journal entries for both items, and create new journal entries:

  • Item 1000: Reverse the original initial journal entry of $1,465.26. Create a new journal entry for $1,549.47.
  • Item S0021: Reverse the original initial journal entry of $274.74. Create a new journal entry for $290.53.

Termination

Item S0021 has a start date in January 2020 and an end date in December 2020, but is terminated in June 2020. Recalculate the contract revenue amount for both items:

  • Item 1000: The contract revenue is recalculated as $1,567.67.
  • Item S0021: The contract revenue is recalculated as $124.00.

Create an adjustment journal entry for the line that is terminated. Reverse the journal entry for the line that belongs to the same multiple element arrangement (MEA) number, and create a new journal entry:

  • Item 1000: Reverse the original initial journal entry of $1,465.26. Create an adjustment journal entry for $1,549.47.
  • Item S0021: Reverse the original initial journal entry of $274.74. Create a new journal entry for $124.00.
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