Revenue Recognition for ASC 606 starts when a quote is created and accepted for required products and services.
A quote is created and accepted for required products and services.
On quote acceptance, orders and assets are created.
When the order is activated, an agreement corresponding to the order is created.
The transaction price is calculated for the agreement line items. By default, it is same as the order line item net price.
Each agreement line will have net price, transaction price, and revenue allocation
Performance Obligations are created for each agreement fee.Each agreement fee can have one or more obligations based on revenue recognition policy or revenue split/merge policy.
Revenue fees are created for each obligation based on the revenue allocation amount on the obligation
Revenue schedules are generated for each revenue fee when the revenue is recognized at the month end.
Revenue forecast schedules are generated and updated on demand
To recognize revenue using the ASC 606 Standard, go to Setup > App Setup > Develop > Custom Settings and click Manage beside Revenue System Properties. Click Edit for System Properties and select Enable ASC-606.
Key Terminology
Term
Definition
Revenue Allocation Amount
Allocation Amount is the amount of revenue allocated for each agreement fee. By default, the allocation amount is same as the transaction price.
Revenue Transaction Price
Transaction Price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
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.
