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 Service-Related Revenue Recognition


Using service-related revenue recognition, you can carry out revenue recognition on the basis of a specific event . An example of this would be revenue recognition for a service contract when services are performed.

The accrual period is not relevant for service-related revenue recognition. Service-related revenue recognition supports the following service types:

  • Goods that have to be delivered

  • Services that do not require delivery.

Revenue recognition for service-related items takes place at sales document item level. The items can be contained in the following documents:

  • Sales contracts

  • Sales orders

  • Release sales orders

  • Credit memo requests

  • Debit memo requests

  • Returns requests

    Example Example

    Service-related revenue recognition method

    You conclude a service contract with a customer and invoice the customer for the full amount at the start of the contract validity period.You only recognize revenues if the agreed services are actually provided, however. If the total contract amount is 15,000 and the value of each individual service is 3,000, you recognize a value of 3,000 each time a service is performed.

    If you perform the service and also deliver a product with a value of 6,000, for example, you recognize both 3,000 and 6,000. The remaining amount stays as credit on a deferred revenue account until you have performed the other services.

    The following figure shows a graphical display of the revenue recognition process.

    Example of service-related revenue recognition:

    End of the example.