Dynamics 365 – Revenue Recognition Is Here To Stay
After years of dealing with Project Revenue Recognition woes when implementing Dynamics for Construction and Field Service companies, there is a light at the end of tunnel … and it is not a train. Hey Dynamics implementers … remember the days working with Specialty Contractors with requirements to complete phases of a construction project or install equipment (or both) when revenue recognition was only possible in specific scenarios your Accountants asked for? Recall when revenue was booked in the month the sale was invoiced and it needed to be deferred mandating a manual process and excel spreadsheets? Recollect wishing revenue recognition could be automated or simplified in some way?
Let the celebration begin! This is good news for all Project-based businesses in the Dynamics 365 ecosystem and beyond.
Dynamics 365 can now defer revenue and recognize revenue at the proper time, and we can help set it up in a few easy steps. In fact, D365 offers a Revenue recognition module and workspace to make the process so much easier and understandable.
And revenue can be recognized when using a project or not! How cool is that?
Revenue Recognition
First, let’s define Revenue recognition.
Revenue recognition begins with a customer invoice. If the invoice is issued for services, insurance, support, resources or anything that will be supplied to the customer over a period of time, the amount of the invoice must not be booked to revenue in its entirety. Instead, the invoice amount must be booked as deferred revenue and then ‘unwound’ or recognized over the life of the agreement with the customer. This agreement to provide something of value over a period of time can be considered a contract. The life of the agreement can be considered the contract terms.
Revenue Recognition Setup
To make use of revenue recognition, the system has to be configured. The setup can be completed right from the new Revenue recognition module. At first glance, it may look like a daunting task, but rest assured, we can help organizations navigate the setup in short order!
- Create a Journal name for Revenue recognition purposes.
- Create Revenue recognition schedules to meet the business requirements.
- Complete the posting setup for the new revenue transaction types, including deferred.
See? Not so bad after all!
Revenue Recognition Process
Now that it is set up, let’s give it a whirl! With or without the use of Projects, Sales orders are created and invoiced. By identifying a revenue schedule and contract terms on the Sales order line, D365 generates a revenue schedule.
The Revenue schedule includes the revenue amounts and the dates the revenue amounts can be recognized.
Finance simply reviews the Revenue schedules compiled in the system by running an inquiry or reviewing the workspace, and prepares the Revenue recognition journal for posting at the appropriate time.
Revenue Recognition Bonus Points
D365 gets bonus points for including some features in the new module such as the ability to review the Revenue schedule BEFORE the sales order is invoiced. This is called the expected revenue schedule.
If the need arises, revenue streams can be placed on HOLD so the revenue is not recognized improperly.
And check out the Revenue management workspace:
If the transaction that generated the revenue schedule is reversed or corrected, D365 can handle it.
Revenue Recognition in more detail
Have other challenges like Fair Market Value (FMV) or the need for Revenue reallocation? The functionality is flexible and configurable to meet many seemingly complex requirements. D365 and Ellipse Solutions can support these and many other business scenarios as the need arises. Give us an opportunity to demonstrate and discuss what it can do!