Deferred Revenue Processing: Revenue Recognition in Microsoft Dynamics 365 Finance and Operations, Part 3

December 2 2019

In Part 2 of the Revenue recognition series, we reviewed the setup required for deferring revenue in Dynamics 365 Finance. In this article, we are going to process an actual order and review how the system will recognize the revenue during Sales Order Invoicing. We have taken a very simple example to illustrate the functionality.

View Expected revenue recognition schedule

Create an order and add a line item. In the example below, notice the price is set to $1,200 and schedule is set to 12M (12 months). The contract starts from 12/1/2019 and ends after 12 occurrences on 11/30/2020.

create_order_and_add_line_item

Confirm the sales order by navigating to the Sell tab on the order header > Generate group > Confirm sales order. Once the order has been confirmed successfully, the buttons under ‘Revenue recognition’ group become available.

To view the expected deferred revenue transactions, click on ‘Expected revenue recognition schedule’. Notice how the total amount of $1,200 is now distributed evenly across 12 months (based on revenue schedule).

expected_revenue_recognition_schedule

Invoice order and view actual recognition schedule

Post the Invoice for the sales order. Once the order has been invoiced, you will notice a few changes on the revenue recognition tab.

‘Expected revenue recognition schedule’ gets grayed out and the option ‘Revenue recognition schedule’ is enabled. The revenue recognition schedule option displays the actual schedule for the order as order has been invoiced.

actual_schedule_for_order

Next, let’s review the GL voucher that got posted during invoice. The invoice voucher can be viewed from Invoice tab > Journals group > Invoice. The invoice journal form opens. Click on a voucher to view the ledger postings.

view_ledger_postings

Notice how the entire order amount of $1,200 has been posted to ‘Deferred Revenue’ account.

In addition to GL postings above, the sales order invoicing process also created a ‘Revenue schedule’ for the entire invoice based on contract start / end date and revenue schedule.

To view the revenue schedule, go back to manage tab on the sales order and click ‘Revenue recognition schedule’. The Revenue recognition schedule form opens.

revenue_recognition_schedule_opens

The same form can be opened from multiple places including the (Revenue recognition workspace),  and the Revenue management module.

The revenue recognition schedule form provides good options to manage contract date changes without requiring other changes on the sales order and reversing/rebilling it. It also allows us to recognize revenue when contractual obligations are met.

Recognize revenue after contractual obligations are met

Let’s say, we are ready to recognize revenue up to 12/31/2019. To recognize the revenue, click on ‘Create Journal’ on top for the form. A dialog box like the following opens:

click_create_journal

Click 'OK' to create the Revenue recognition journal.

A message is displayed to the user providing the journal number. The line that gets added to the journal will now have the field 'Processed' marked.

processed_field_marked

To view the journal, go to Revenue recognition module > Journals > Revenue recognition journals. Once you have located the journal, click on a line to view the entry generated by ‘Create journal’ process.

view_entry_generated_by_process

Notice that ‘Deferred Revenue’ account is getting Debited and sales account is getting credited. Also notice the detailed description – it has the invoice number as well as the item for which revenue is being recognized.

Post the journal by clicking 'Post'.

Let’s go back to Revenue recognition schedule and see the impact of the journal posting.

see_impact_of_journal_posting

A nice feature

Contract terms can be updated at any time (before or after recognizing the revenue). Reversal of recognized revenue is automatically taken care of and a new schedule is created based on revised contract dates.

Similarly, when contractual obligations are met, the revenue recognition can be recognized on regular intervals.

In the next article, we will use revenue price and review how revenue allocation and recognition works. Stay tuned.

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About Satish Panwar

Satish works as a Senior Architect at Hitachi Solutions America and has more than 14 years of experience implementing different versions of Microsoft Dynamics AX. He holds numerous certifications and hold bachelor’s degree in Information technology.

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