Are you ready for the new ASC 606 standards?
NetSuite recently started offering a new module for revenue recognition. It’s called Advanced Revenue Management and here’s what you need to know:
It replaces the previous revenue recognition module, adding additional functionality and complying to the newest standards in revenue recognition.
If you’re buying a new NetSuite account and need to do revenue recognition, you cannot get the old revenue recognition module and must get Advanced Revenue Management.
If you already have NetSuite and are using the previous revenue recognition module, you can stay on the old module or migrate to Advanced Revenue Management.
Implementing Advanced Revenue Management requires you to go through either NetSuite Professional Services or a NetSuite Partner who has completed the enablement (a process similar to certification) such as Big Bang ERP.
The main reason behind this new module is compliance with the new ASC 606 standards. This is particularly important for public companies who recognize revenue on multi-element arrangements, i.e. transactions where multiple items may have deferred revenue, and the calculated value of these items (for rev rec purposes) may depend on the value of other items in the transaction.
A classic example is if you sell software, hardware, and provide hardware support all on the same order. For rev rec purposes, the hardware and software may have a fixed value, but the hardware support element may have its value calculated as a percentage of the hardware.
That sums up very briefly what Advanced Revenue Management is all about. Now, let’s review how NetSuite designed their solution:
Here’s the explanation of each element in the diagram above, as taken from the NetSuite Help Center:
- Revenue arrangements – Transactions that record the details of customer performance obligations for purposes of revenue allocation and recognition. Advanced revenue management automatically creates revenue arrangements from predefined revenue sources, such as approved sales transactions. The arrangements from multiple revenue sources can be consolidated.
- Revenue elements – Records that correspond to individual lines in a source. Revenue elements are attached as lines on a revenue arrangement.
- Revenue recognition rules – Records that define patterns for revenue recognition. They include, for example, the recognition method, amount source, and start and end date sources.
- Revenue recognition plans – Records that indicate the posting periods in which revenue should be recognized and the amount to be recognized in each period. Revenue plans are derived from revenue recognition rules. Each revenue element has a forecast plan and one or more actual plans. The actual revenue plans control the posting of revenue.
- Fair value price list – List of the records that define the fair value for items. Fair value price is used to allocate revenue in revenue arrangements.
Note that the diagram shows the Sales Order as a starting point, but rev rec could also start from a Journal Entry, Return Authorization, Project, etc.
For more information you can visit the links below:
- NetSuite’s Revenue Recognition “sales” page
- NetSuite’s “Revenue Recognition in the Cloud”
- Link to “Using Advanced Revenue Management” in the NetSuite Help (requires NetSuite login)
If you have any questions about NetSuite and if it’s right for your business please feel free to contact us