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Author's profile photo Sukanya Prabhu

Revenue Recognition for Product Sales in SAP Business ByDesign

In this blog post I have explained how the revenue is recognized for the revenue type ‘product sale’ when the accrual method is “Recognize at the point of delivery”.

Product sales include the sale of materials, standardized services, and related expenses. They do not include project-based services and expenses.

What is Revenue recognition ?

Revenue recognition is the process of assigning sales revenue to the periods in which it was realized and earned. The cost of sales and any revenue deductions for returns associated with the revenue need to be assigned to the same accounting periods as the revenue itself.

Revenue recognition involves either deferring or accruing revenue or cost of sales

Deferring revenue or cost of sales means to carry these amounts forward into the next accounting period.

Deferrals are transfers of revenue and cost of sales from the income statement accounts to special balance sheet accounts .So that it will not influence the profit of the current accounting period. Then we can transfer the revenue or cost of sales to the income statement in the accounting period in which the revenue is realized.

Accruing revenue or cost of sales means to record these amounts in the current accounting period even though they have not yet been posted by an invoice, warehouse or service confirmation, or credit memo.

Accruals are postings of sales revenue or cost of sales to the income statement accounts and of the offsetting entries to special balance sheet accounts .Then we can clear the sales revenue or cost of sales with the accrued net value, the accrued cost of sales in the accounting period in which the invoice , warehouse confirmation are posted.

Prerequisites

Navigate to Business Configuration > Implementation project > Click on edit project scope > Under Step 3 Scoping > Financial and Management Accounting >   Management Accounting >  ensure that Sales and Profit Analysis is scoped.

Fig1: Scoping

In the Questions step under Financial and Management Accounting > Management Accounting >  ensure that the question about whether you want revenue recognition is answered with Yes.

Fig2: Enable the question

Enter the relevant GL accounts in the Chart of account and account determination for deferred net value , Deferred sales returns and Deferred Cost of Goods Sold on the Revenue Recognition- Deferrals tab of the Sales subledger. These accounts must be of the type ACLEAR > Accruals/Clearing.

Fig 3: Fine tuning of COA and ADG mapping

Enter the accounts for Accrued Net Value, Accrued Sales Returns, and Accrued Cost of Goods Sold on the Revenue Recognition – Accruals tab of the Sales These accounts must be of the type ACLEAR – Accruals/Clearing.

Fig 4 : Fine tuning of COA and ADG mapping

To assign the accrual method to the revenue type navigate to Business configuration > implementation project > click on open activity list > Search for accrual method determination

Fig 5: Fine tuning of Accrual method Determination

Accrual methods contain rules that define how the system recognizes the revenue. Here we can enter a Company ID, Set of Books ID, Product Category ID, and Product ID for which you want to specify the accrual method.

Fig%206%3A%20Edit%20Accrual%20method

Fig 6: Edit Accrual method

Process flow

Create a new sales order from the sales order work center > under common task > new sales order > Enter all the mandatory details and submit the sales order.

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Fig7:Creation of sales order

Release the customer demand from outbound logistics control or supply planning work center.

Fig8%3AReleasing%20of%20customer%20demand

Fig8:Releasing of customer demand

Navigate to cost and cost revenue work center > overview > Sales document items where we can see the Accrual methods are automatically assigned based on the assignment rules specified in Business Configuration.

Fig9: Navigation to sales document items

Navigate to outbound logistics work center > Delivery proposal > Release the outbound delivery

Fig10%3AReleasing%20of%20outbound%20delivery

Fig10:Releasing of outbound delivery

In the document flow of outbound delivery the Journal entry posted for warehouse confirmation where Deferred COGS account is a balance sheet account, which means the revenue is not yet recognized .Here incurred cost of sales related to sales document item posted to deferred cost of sales account. If no accrual method is assigned to the sales order item, sales revenue is posted directly to the Sales Revenues.

Fig11%3AView%20of%20journal%20entry%20of%20outbound%20delivery

Fig11:View of journal entry of outbound delivery

To perform the revenue recognition Navigate to cost and revenue work center > Click on Revenue recognition > Execute Revenue recognition

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Fig12:Executing revenue recognition

Enter all the mandatory details and click on ok. You can just simulate the run by selecting the Test Run A test run produces a preview of the results but does not generate any actual postings.

Fig13: View of Revenue recognition run

             Or

We can perform/execute the Revenue Recognition run that recognize revenue for sales orders based on the accrual methods assigned to them in the Cost and Revenue work center Or from the list of Closing activities in the closing cockpit view also.

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Fig14: Navigation to execute revenue recognition

Enter all the mandatory details and click on start now

Fig15:View of Revenue recognition run

Here we can see the Journal entry posted for revenue recognition after outbound delivery before releasing customer invoice where system recognized revenue from the deferred net value account to the sales revenue account and the related cost of sales from the deferred cost of sales account to the expense account. The run posts recognized cost of sales from the deferred cost of sales account to the corresponding expense accounts.

Fig16: View of journal entry for revenue recognition

Navigate to customer invoicing workcenter > under overview invoice request > Release the customer invoice

Fig17:Releasing customer invoice

In the document flow of customer invoice journal entry posted for customer invoice

Fig18: View of journal entry for customer invoice

Execute the Revenue recognition after releasing the customer invoice by entering all the mandatory details .

Fig19: Executing revenue recognition

Here we can see the journal entry posted for the revenue recognition after releasing the customer invoice. The deferred account and the unbilled receivables account is cleared.

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Fig20: View of journal entry for revenue recognition

I have tried to explain the process flow of Revenue recognition for revenue type product sales in simple terms.  I hope it would be helpful for those who want to understand the process of ‘Revenue recognition for product sale’ in SAP Business ByDesign

Do follow and would love to read some feedback and thoughts from your side in the comment section.

Some of the Revenue recognition related documents from Help Library are:

https://help.sap.com/docs/SAP_BUSINESS_BYDESIGN/2754875d2d2a403f95e58a41a9c7d6de/2ccb31fb722d10148fa58affc53c007a.html

https://help.sap.com/docs/SAP_BUSINESS_BYDESIGN/2754875d2d2a403f95e58a41a9c7d6de/2c2c5b1f722d101481fb945868a9e629.html

https://help.sap.com/docs/SAP_BUSINESS_BYDESIGN/2754875d2d2a403f95e58a41a9c7d6de/2d00fa4e722d10148c80a5926e8c7984.html

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      3 Comments
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      Author's profile photo Deepali Shenaoy
      Deepali Shenaoy

      Hi Sukanya,

      Revenue Recognition topic is one of the important topics in Financial Modules and your blog is very well explained regarding that. Thanks for sharing this blog.

      Regards

      Deepali

      Author's profile photo Sukanya Prabhu
      Sukanya Prabhu
      Blog Post Author

      Thank you Deepali

      Author's profile photo Harsha Salian
      Harsha Salian

      Hi Sukanya

      Thanks for the Good Information

      Regards,

      Harsha