It is essential to understand the following concepts in order to work with Revenue Recognition.
- Revenue Agreement - A Revenue Agreement is an agreement established between a customer and vendor when the vendor agrees to provide products and services and the customer agrees to receive and pay for those products and services. This agreement may be a formal document with a signed contract or it could be an informal agreement as with any subscription service provider. It is important to note that an agreement always exists; if it does not exist, no revenue exists. This agreement is represented within Conga by a Revenue Agreement record.
- Agreement Fee - An Agreement Fee is a revenue from the goods or services provided within an agreement. As many products and services can exist under a single agreement revenue, multiple revenue fees can exist under a single revenue agreement.
- Revenue Recognition Policy - A Revenue Recognition Policy defines how to recognize revenue for an Agreement Fee. It is essential to associate the Revenue Recognition Policy with the Agreement Fee as it determines when the revenue will be recognized - revenue can be recognized at once or it can be spread over a number of periods. Each Agreement Fee may have only a single policy but many policies can be created to reflect the different ways the revenue can be recognized.
- Revenue Schedule - A Revenue Schedule is an object where the amount of revenue to be recognized in each month is stored. By applying the Revenue Recognition Policy to the Agreement Fee, a waterfall can be created to show how much revenue will be recognized in each month. Since revenue can be recognized over time, many revenue schedules can exist under a single revenue fee.
- Performance Obligation - Performance Obligation is a promise in a contract with a customer to transfer to the customer either:
- A good or service (or a bundle of goods or services) that is distinct.
- A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
- Agreement Line - Agreement Lines are created for each product in your agreement. Each agreement line will have net price, transaction price, and revenue allocation amount.
- Revenue Split-Merge Policy - Revenue Recognition Policies allows users to create rules so the system can automatically distribute revenue according to their business policies. Split or Merge policy is useful when you have single asset having multiple obligations or multiple assets that are a part of single obligation.
- Revenue Forecast Schedules - Revenue Forecast Schedules are created when you run the Forecast Revenue batch job. Revenue Forecast Schedules show the distribution of revenue that is yet to be recognized. They are used to predict a company's future financial state.
The diagram below depicts the revenue agreement and its components.