Revenue Recognition and Invoicing Rules explained

Revenue recognition principle is an important accounting principle, which is the main difference between cash basis accounting and accrual basis accounting. In cash basis accounting revenues are simply recognized when cash is received no matter when and how the services were performed or goods delivered. In accrual basis accounting revenues are recognized when they are (1) realized or realizable and (2) earned no matter when cash is received.

Revenue recognition criteria according to US GAAP:
USSEC's SAB104 states that revenue generally is realized or realizable and earned when all of the following criteria are met:
1. Persuasive evidence of an arrangement exists;
2. Delivery has occurred or services have been rendered;
3. The seller's price to the buyer is fixed or determinable; and
4. Collectability is reasonably assured

Invoicing Rules and Accounting Rules:
In Oracle AR, the invoicing and accounting rules help create invoices that span several accounting periods. Accounting rules determine the accounting period or periods in which the revenue distributions for an invoice line are recorded. Invoicing rules determine the accounting period in which the receivable amount is recorded.




Accounting Rules:
Accounting rules determines revenue recognition schedules for invoice lines. Different accounting rules can be assigned to each invoice line. Using Accounting rules, the number of periods and the percentage of the total revenue to recognize in each period can be specified. Also accounting rules can be Fixed or Variable Duration.

Clients can also create rules that will defer revenue to an unearned revenue account. This helps in the delay of specifying the revenue recognition schedule until the exact details are known. When these details are known, clients use the Actions wizard to recognize the revenue.

Invoicing Rules:
Invoicing rules determines when to recognize receivable for invoices that span more than one accounting period. Clients can only assign one invoicing rule to an invoice. Receivables provides the following invoicing rules:
• Bill In Advance: Use this rule to recognize your receivable immediately.
• Bill In Arrears: Use this rule if you want to record the receivable at the end of the revenue recognition schedule.

Using Invoices with Rules:



Assigning Invoicing Rules:
• Invoicing rules determine whether to recognize receivables in the first or in the last accounting period.
• Once the invoice is saved, you cannot update an invoicing rule.
• If Bill in Arrears is the invoicing rule, Oracle Receivables updates the GL Date and invoice date of the invoice to the last accounting period for the accounting rule.



Assigning Accounting Rules To Invoice Lines:
• Accounting rules determine when to recognize revenue amounts.
• Each invoice line can have different accounting rule.



Creating Accounting Entries:
• Accounting distributions are created only after the Revenue Recognition program is run.
• For Bill in Advance, the offset account to accounts receivable is Unearned Revenue.
• For Bill in Arrears, the offset account to accounts receivable is Unbilled Receivables.
• Accounting distributions are created for all periods when Revenue Recognition is run.

Running The Revenue Recognition Program:
• The Revenue Recognition program gives control over the creation of accounting entries.
• Submit the Revenue Recognition program manually through the Run Revenue Recognition window.
• The Revenue Recognition program will also be submitted when posting to Oracle GL.
• The program processes revenue by transaction, rather than by accounting period.
• Only new transactions are selected each time the process is run.