Recognize Revenue via RightRev

at its core, revenue recognition refers to the process through which a company records and reports its earned revenue in its financial statements it entails adhering to accounting standards and principles to accurately document when revenue is realized and earned, ensuring transparency and reliability in financial reporting essentially, it enables businesses to effectively track and communicate their financial performance to stakeholders, investors, and regulatory bodies in essense, revenue is the income from the sale of goods and services how, when and how much revenue is recognized is determined by the terms of delivery for contracted obligations for example, delivery can be by activation, setup, consumption, and shipping of goods and services that are met at a point in time or over the contract term what is revenue recognition and asc606 with so many factors in play — from pricing models and bundles to rebates and warranties to termination policies and more — revenue recognition can be a fairly messy prospect and because revenue recognition requirements have traditionally been so varied and inflexible, revenue reported correctly under the previous gaap revenue recognition rules has often fallen short of fairly representing a company’s financial activity but this new set of rules, whose full name is asc 606 revenue from contracts with customers, offers a standardized model of how companies across most industries recognize revenue while allowing companies more flexibility to work with their auditors to support market pricing models these guidelines and processes have been organized into five steps the primary driving principle here is that companies must recognize a contract’s entire transaction price as obligations are fulfilled to the customer, in an amount per obligation that is proportionate to the relative market value of the goods and services that comprise those obligations that’s all easy enough for a company selling widgets, but when we start getting into more complicated agreements for services offerings, subscriptions and consumption based models — not to mention future contract rights, contract modifications, and financial statement disclosure requirements— that’s when things get tricky nue integrates with revenue recognition partners like right rev https //rightrev com/ and netsuite https //www netsuite com/portal/products/erp/financial management/revenue management shtml to help our customers conform to the revenue recognition policies in this article, we will explain the integration between nue and rightrev, showcasing how it facilitates revenue recognition in accordance with asc 606 guidelines let's get started! permissions the following functional permissions are required in the user role for the user to perform revenue recognition operations recognize recognition revenue contracts setup rightrev connection before setting up rightrev connection, please contact your rightrev account representative to acquire the api accesses, including the following key information realm client id client secret username and password once you receive the information above, you can setup the rightrev connection with nue by following the steps below login to nue app https //app nue io navigate to system settings → rightrev connection enter the information you receive from rightrev and click 'save' users can also test the connection by click on the button 'test connection' to make sure the information is entered correct when the rightrev connection is succesfully saved and validated, the user can click ‘initial setup’ to start the tenant provisioning in rightrev provision default policies after the user starts the initial setup, the following default entities and policies will be created automatically in the connected rightrev tenant legal entity a new legal entity will be created using the organization name of the company in nue currently, nue and rightrev integration supports a single legal entity accounting calendar the current and future open accounting periods configured in salesforce will be synchronized to the connected rightrev tenant currency the connected rightrev tenant comes with a list of currency values if you have a need to configure currency conversions, you can log into rightrev to setup currency conversion rates, etc customer contract definition nue provision a default customer contract definition based on customer id this allows nue to generate revenue contracts by creating separate contracts for each customer by its customer id complex customer contract scenarios if you have more complex and granular revenue rules for splitting revenue contracts, for instance as a revenue ops, i want to determine when an order is associated to an existing revenue contract, or when to create a new revenue contract, e g a new revenue contract should be created when the customer purchases more licenses and hardward for a new site; when the customer purchases a new product in such scenarios, you can modify the customer contract policy after the provisioning process, by following the steps below login to rightrev ui navigate to revenue policies → identify customer contract choose 'nue revenue contract id', which is a custom field provided by nue, and add it to the customer contract definition click submit in nue on salesforce, you can create custom flows to populate different values in the nue revenue contract id field on the order product object for order products requiring a new revenue contract, or an existing revenue contract default revenue rules during the provisioning process, the following default revenue rules are created based on the revenue model of products recurring services one time products credit burndown overage usage these revenue rules will be associated with products with different revenue models by default default ssp (standard sales price) policy as defined by asc 606 and ifrs 15, standalone selling price (ssp) is the price at which an entity sells a good or service separately to a customer a good or service might have more than one ssp the best evidence of ssp is the observable price of a good or service when the entity sells that good or service separately in similar circumstances to similar customers typically, you can have a different ssp policy for a different product category in rightrev, the following tenant configuration setting goes side by side with the ssp policies login to rightrev click on 'settings' and navigate to tenant configuration inue will not create ssp policies by default because different companies have different requirements please work with our implementation services or partners to determine if ssp policies are needed, and configure them accordingly create order, invoice and credit memo ingestion definition during the provisioning process, the default order, invoice and credit memo ingestion definition is created nue automatically provisions the following 2 custom fields in the order policy definition name description revenue model represents the revenue model of a product in nue available values include recurring services, one time, credit burndown, overage usage product sku represents the unique name of a product in nue once all the policy definitions mentioned above have been established, the provisioning of the rightrev tenant is complete you can click 'activate' to activate your configuration you may proceed to log in to rightrev to customize further policies, such as ssp policies, based on your company's requirements alternatively, you can initiate testing to observe revenue recognition in operation, as all fundamental configurations have been set up customize revenue rules after the transaction lines are grouped into the revenue contract based on the customer contract definition, transaction lines within one revenue contract must be grouped into promises that are made to customers these promises are referred to as performance obligations (pob) by asc 606 revenue can be recognized as or when the performance obligation is satisfied in rightrev, we formulate revenue rules to represent the performance obligations these predefined rules serve as recommended practices nevertheless, users have the flexibility to tailor custom revenue rules to align with their specific business requirements customize revenue rules for the organization users can customize revenue rules at the organization level the revenue rules configured at the organization level will be used for all products in the organization you can view and customize revenue rules for the organization by following the steps below login to nue app and navigate to settings → revenue rules you can view the default revenue model and revenue rules mapping you can click on 'edit' icon for each mapped revenue rule to view and edit the rule definition, for example once you've completed your edits, you can click 'confirm' to save them it's important to note that this action doesn't overwrite the default revenue rule instead, it generates a copy of the default rule, allowing you to make edits to the copy, creating a new revenue rule this new rule will then be associated to all products with the corresponding revenue model as a result, when you log in to rightrev, you'll see both versions of the revenue rules the default revenue rule and the copied, edited version this approach is deliberate, as it prevents modifications to existing revenue rules that are already associated with historical transactions the newly copied and edited rule will be applied to new transactions, while the original copies will remain intact for historical data consistency you may also click restore defaults to restore to the default revenue rule this essentially creates yet another revenue rule by copying from the default revenue rule provisioned originally by the system customize revenue rules for a product by default, the revenue rule mapped to the revenue model of the product will apply however, a user can edit the default revenue rule to create a product specific revenue rule you can follow the steps below to customize the revenue rule for a product login to nue app and navigate to product catalog click 'edit' icon to edit a product in the revenue model field, click 'configure' icon the revenue rule popup will launch you can view and edit the revenue rule accoring to your business needs again, it is important to know that by editing the revenue rule associated to a product, it essentiallyc creates a copy, edits the copy, and associates the new revenue rule copy to the product you can also click 'restore defaults' to restore to the system default revenue rule for this product associate accounting segments with products when users create a product or bundle in nue, they have the option to define accounting segments these defined segments will be transferred to rightrev for revenue allocation when transactions are imported into the platform specifically, users can enter the values for the following accounting segment fileds name api name salesforce api name description contract liability segment contractliabilitysegment ruby contractliabilitysegment c accounting code of the contract liability segment contract revenue segment contractrevenuesegment ruby contractrevenuesegment c accounting code of the contract revenue segment carves liability segment carvesliabilitysegment ruby carvesliabilitysegment c accounting code of the carves liability segment carves revenue segment carvesrevenuesegment ruby carvesrevenuesegment c accounting code of the carves revenue segment eligible to include in carves allocation carveseligible ruby carveseligible determines if the product is eligible to include in carves allocation or not valid values are true / false when carves allocation is needed for the product or bundle, users can check "eligible to include in carves allocation" checkbox when this checkbox is checked, users must enter values in all 4 accounting segments fields generate revenue contracts upon activation of an order, whether it's a new order or a change order, or upon activation of an invoice or credit memo, the relevant transactions will be ingested into rightrev in real time this process facilitates the creation of new revenue contracts or adjustments to existing ones these revenue contracts can be accessed from both the nue app and nue on salesforce application we ingest order product records into rightrev as order transactions, and invoice item detail and credit memo item detail records into rightrev as invoice transactions, as shown in the following table order transaction order product transaction date activation date invoice transaction invoice item detailcredit memo item detaildebit memo item detail transaction date invoice date each invoice transaction has a reference to the order transaction via the order financial id nue populates the order financial id carefully to ensure the accuracy of revenue recognition, not only for new orders but for any changes occurred in the revenue lifecycle of customers only ingest transactions in open accounting periods presently, upon activation of an order or an invoice (or credit memo), we transfer the order products and invoice item details (or credit memo item details) to rightrev however, rightrev imposes a constraint wherein transactions can only be imported if their dates fall within the start and end dates of the current accounting period to accommodate this requirement, the following adjustments are necessary upon activation of a transaction (which includes order products, invoice item details, credit memo item details, or debit memo item details), if the transaction date falls within the start and end dates of the current accounting period, the transaction record should be ingested into rightrev in cases where the transaction date falls outside the current accounting period, the transactions should be temporarily held subsequently, these transactions will be imported into rightrev in small batches of 200 records on a scheduled basis (e g , nightly) when the accounting period is open view revenue contracts users can view revenue contracts in both nue app and nue on salesforce from nue app navigate to revenue manager → revenue contracts users should see all revenue contracts sorted by revenue id users can use one of the filters to narrow down the search recently viewed recently created recently modified mostly valued users can click on the view icon to navigate directly into rightrev to view more details about the revenue contract recognize revenue of multi year contracts with ramping prices scenario a saas company provides a 3 year service to a customer, with 10k, 20k and 30k usd each year should multi year contracts with ramp pricing be recognized as a 3 single year contracts, with 10k, 20k and 30k dollars each year, or be recognized in equal amounts each year, i e , 20k per year? overview asc 606 provides two methods for recognizing revenue over time—input method and output method the chosen method depends on how the company measures progress toward satisfying the performance obligation input method this method measures progress based on the inputs consumed to fulfill the performance obligation for example, the saas company might determine that the cost of providing the service is incurred evenly over the 3 year period in this case, revenue would be recognized in equal amounts each year $20,000 per year output method this method measures progress based on the direct output of the service provided if the saas company can directly measure the value delivered to the customer each year (e g , number of users, functionality provided), revenue could be recognized based on the output achieved in the case of the 3 year contract with varying payments, if the saas company is providing a continuous service over the 3 year period and the payments are not indicative of standalone pricing for each year, it would typically be seen as a single performance obligation under asc 606, revenue would be recognized over time if certain conditions are met, such as when the customer receives and consumes the benefits of the saas service as it is provided the revenue recognized over time could be based on an input or output measure of progress, depending on the specific circumstances however, if the saas company can identify distinct performance obligations within the contract, such as separate services or deliverables for each year, and can demonstrate that each year's service represents a standalone obligation with its own pricing, then it may be possible to treat the contract as three separate one year contracts for revenue recognition purposes ultimately, the determination of whether the contract should be treated as one performance obligation or multiple separate obligations under asc 606 depends on the specific facts and circumstances of the contract it is recommended to consult with an accounting professional or revenue recognition specialist to analyze the contract and apply the appropriate guidance nue's approach nue automatically splits order products into ramp lines so that each line item has a distinct delta mrr for instance, consider a scenario where a subscription offers a one month free trial followed by a 12 month subscription in this case, the subscription will have two ramp lines the first month with 0 delta mrr and the subsequent 11 months as the second ramp line currently, we import order products with "lineitem" and "rampline" understanding line types docid\ hqqnw6wuf4f5ljj7 bfdi however, if we wish to treat a subscription (or at least its current term) as a single contract, we must adjust how we ingest order products into rightrev users can follow the steps below to enable revenue recognition for multi year subscriptions with ramp pricing as a single contract login to nue app https //app nue io navigate to settings → revenue settings enable setting " recognize revenue for a subscription with ramp pricing as a single contract " when this option is enabled, nue will adjust how we ingest order products into rightrev, so that for a mult year subscription with varying prices, the revenue would be recognized in equal amounts each year otherwise, the revenue will be recognized in varying amounts each year putting it altogether nue integrates with revenue recognition partners like rightrev and netsuite to assist customers in conforming to revenue recognition policies the integration between nue and rightrev ensures compliance with asc 606 guidelines, facilitating revenue recognition processes before setting up the rightrev connection, users must acquire api accesses and key information from their rightrev account representative once received, the connection can be set up in nue app, enabling users to test the connection for accuracy during the provisioning process, default entities and policies are automatically created in the connected rightrev tenant, including legal entities, accounting calendars, currency configurations, and customer contract definitions these defaults can be further customized to align with the organization's specific needs revenue rules are formulated in rightrev to represent performance obligations, with default rules provided as recommended practices users have the flexibility to customize revenue rules at both the organization and product levels to accommodate specific business requirements upon activation of transactions such as orders, invoices, or credit memos, relevant data is ingested into rightrev in real time or scheduled batches, facilitating the creation or adjustment of revenue contracts revenue contracts can be viewed in both nue app and nue on salesforce, providing users with comprehensive visibility into revenue recognition processes in summary, nue's integration with rightrev streamlines revenue recognition processes, ensuring compliance with asc 606 guidelines and enabling organizations to effectively manage revenue contracts and obligations