Revenue Recognition for Service Contracts with SAP ERP Integration

In many companies, it is necessary to perform period-based results analysis for revenues. This means that revenue must be recognized in the posting period in which the service was rendered, rather than in the posting period in which the billing document was created. You can use the revenue recognition function to fulfill this requirement by separating revenue recognition from the billing process.

The automatic transfer of data from business transactions in SAP CRM Service into an SAP ERP internal order makes it possible for you to use results analysis in SAP ERP.

Caution Caution

Revenue recognition in SAP CRM is applied to service contracts in SAP CRM and technically has nothing to do with revenue recognition in the SAP ERP component Sales and Distribution (SD). Results analysis is technically used in SAP ERP component Product Cost Controlling (CO-PC).

End of the caution.

Revenue recognition controls how much revenue is to be reported in which posting period.

Revenue recognition allows you to recognize revenue in SAP ERP Financial Accounting, independent (timewise) of billing documents (which are normally posted to revenue accounts).

Revenue can be recognized on a periodic basis or on the basis of individual events:

Standard revenue recognition means that billing documents are posted directly to a revenue account. No results analysis takes place.
Time-based revenue recognition (periodic) means that the revenue of a contract is distributed and posted evenly over the entire contract term.
Service-based revenue recognition (value contracts/quantity contracts with a target quantity) means that the revenue is recognized based on an event. Events are releases that are reflected as a service order or service confirmations.

Revenue account determination of billing stays the same in all cases. It makes no difference whether the billing takes place in SAP CRM or SAP ERP (SD). In each case, the billed revenue is recognized at the time of billing. In the case of standard revenue recognition, the billed revenue is the same as the recognized revenue. In the case of time-based revenue recognition and service-based revenue recognition, the following applies: During the period, the recognized revenue is preliminarily the same as the billed revenue. The results analysis then carries out adjustment postings as part of period-end closing. These ensure that the final recognized revenue of the period corresponds to the revenue that is calculated according to the respective method. This means that:

When the billed revenue of the period exceeds the calculated revenue, a deferred revenue, with the amount of the revenue surplus, is formed. The recognized revenue is then the billed revenue minus the deferred revenue.

Example
Billing posts: Customer to Sales Revenue (account 800100): 300 USD

The results analysis calculates, according to the selected method, a revenue of 100 USD.

In the period-end closing, the following is posted: Deferred Revenue (account 99056) to Inventory Change Unbilled Revenue (account 891010): 200 USD.

End of the example.
If the billed revenue is smaller than the calculated revenue, then an unbilled revenue, with the amount of the difference, is formed. The recognized revenue is the billed revenue plus the unbilled revenue.

Example
Billing posts: Customer to Sales Revenue (account 800100): 100 USD

The results analysis calculates, according to the selected method, a revenue of 300 USD.

In the period-end closing, the following is posted: Unbilled Revenue (or: Products in Process) (account 791000) to Inventory Change Deferred Revenue (account 891000): 200 USD.

End of the example.

The data is in CO internal orders that are created in SAP ERP for service contract items from SAP CRM. The results analysis calculates the amounts. The actual postings are generated by the order settlement, based on custom posting rules for the results analysis. At period-end closing, results analysis and order settlement must therefore be executed consecutively.

Integration

Revenue recognition involves various components:

SAP CRM for creating the service contract, service order, and service confirmation
SAP ERP Financial Accounting (FI) for posting to general ledger accounts

The following figure shows the data flow between both systems:

This graphic is explained in the accompanying text.

Features

Service-Based Revenue Recognition (Value Contract)

The following values are determined in SAP CRM, and transferred to SAP ERP:

Target value from the service contract items
Contract start date and contract end date
Released values from the service orders or service confirmations

The following calculations are made in SAP ERP:

Results analysis amount per posting period in percent (degree of revenue recognition) = Release value per posting period / target value x 100
Recognized revenue per period = Results analysis amount per posting period in percent x Planned revenue
The planned revenue is equal to the target value.

This graphic is explained in the accompanying text.

With quarterly billing, 8,125.00 USD is billed in the 1st, 4th, 7th, and 10th periods. The following amounts are calculated and posted:

		Posting Date
Account	Account Number	2003–01–31	2003–02–28	2003–03–31	2003–04–30	2003–05–31	2003–06–30
Sales revenue (billed)	800100	8125			8125
Deferred revenue	99056	4325	-4325	0	0	0	0
Inventory change unbilled revenue	891010	4325	-4325	0	0	0	0
Unbilled revenue	791000	0	175	6200	-3125	7300	0
Inventory change deferred revenue	891000	0	175	6200	-3125	7300	0

Calculated revenue		3800	4500	6200	5000	7300
Revenue surplus		4325	0	0	0	0	0
Unbilled revenue		0	175	6375	3250	10550	10550
Recognized revenue		3800	8125	8125	16250	16250	16250

		Posting Date
Account	Account Number	2003–07–31	2003–08–31	2003–09–30	2003–10–31	2003–11–30	2003–12–31	Total
Sales revenue (billed)	800100	8125			8125			32500
Deferred revenue	99056	0	0	0	5700	0	-5700	0
Inventory change unbilled revenue	891010	0	0	0	5700	0	-5700	0
Unbilled revenue	791000	-8125	0	0	-2425	0	0	0
Inventory change deferred revenue	891000	-8125	0	0	-2425	0	0	0

Calculated revenue							5700	5700
Revenue surplus		0	0	0	5700	5700	0	26800
Unbilled revenue		2425	2425	2425	0	0	0
Recognized revenue		24375	24375	24375	26800	26800	32500	32500

Time-Based Revenue Recognition

The following values are determined in SAP CRM, and transferred to SAP ERP:

Contract start date and contract end date
Sum of billing request items

The following calculations are made in SAP ERP:

Results analysis amount per posting period in percent (degree of revenue recognition) = 100 / Number of posting periods
Recognized revenue per period = Results analysis amount per posting period in percent x Planned revenue
The planned revenue is equal to the sum of the billing request items.
The first period, in which the contract starts, is weighted with the number of calendar days from the contract start date until the end of the period, divided by the total number of calendar days in this period.
The last period, in which the contract ends, is weighted with the number of calendar days from the start of the period until the contract end date, divided by the total number of calendar days in this period.
All full periods between these are equally weighted with 1.

This graphic is explained in the accompanying text.

The following amounts are calculated and posted:

		Posting Date
Account	Account Number	2003–01–31	2003–02–28	2003–03–31	2003–04–30	2003–05–31	2003–06–30
Sales revenue (billed)	800100			7500			7500
Unbilled revenue	791000	2500	2500	-5000	2500	2500	-5000
Inventory change deferred revenue	891000	2500	2500	-5000	2500	2500	-5000

Calculated revenue		2500	5000	7500	10000	12500	15000
Unbilled revenue		2500	5000	0	2500	5000	0
Recognized revenue		2500	5000	7500	10000	12500	15000

		Posting Date
Account	Account Number	2003–07–31	2003–08–31	2003–09–30	2003–10–31	2003–11–30	2003–12–31	Total
Sales revenue (billed)	800100			7500			7500	30000
Unbilled revenue	791000	2500	2500	-5000	2500	2500	-5000	0
Inventory change deferred revenue	891000	2500	2500	-5000	2500	2500	-5000	0

Calculated revenue		17500	20000	22500	25000	27500	30000	30000
Unbilled revenue		2500	5000	0	2500	5000	0	0
Recognized revenue		17500	20000	22500	25000	27500	30000	30000

More Information

Customizing for Revenue Recognition with SAP ERP Integration