Are you ready for the new ASC 606 standards? NetSuite has recently introduced a new module for revenue recognition. It’s called Advanced Revenue Management (ARM) and here’s what you need to know:
What is NetSuite’s Advanced Revenue Management?
- It replaces the previous revenue recognition module, offering additional features and complying with the most recent revenue recognition standards.
- If you’re setting up a new NetSuite account and need to handle revenue recognition, you will need Advanced Revenue Management instead of the traditional old revenue recognition modules.
- If you already have NetSuite and are using the previous revenue recognition module, you have the option of staying with it or upgrading to Advanced Revenue Management.
- Implementing NetSuite 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.
The main reason behind this new NetSuite add-on module is compliance with the new ASC 606 standards. This is particularly important for public companies who recognize revenue on multi-element arrangements.
Deferred revenue transactions in which the computed value of these things (for revenue recognition purposes) is dependent on the value of other items in the transaction.
If you sell software, hardware, and provide hardware support all at the same time, that’s an excellent example. The hardware and software may have a fixed set value for revenue recognition reasons, while the hardware support element’s value may be calculated as a percentage of the hardware.
That is a very basic summary of what an advanced revenue management module entails. Now, let’s have a look at how NetSuite designed its solution:
Best Practices for Setting up NetSuite Advanced Revenue Management
Here’s an explanation of each element in the diagram above, as taken from the NetSuite Help Center:
- Revenue arrangements – Transactions that record the details of a customer’s performance responsibilities for purposes of revenue allocation and recognition. Advanced revenue management automatically creates revenue arrangements using predefined revenue sources like approved sales transactions. Multiple revenue sources can be integrated.
- Revenue elements – Records that represent individual lines in a source. Revenue elements are attached as lines on a revenue arrangement.
- Revenue recognition rules – Records that define revenue recognition patterns. They include, for example, the recognition method, amount source, and start and end date sources.
- Revenue recognition plans – Records that specify the posting periods for revenue recognition and the amount to be reported 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 reporting plans control the posting of revenue.
- Fair value price list – A list of the records that define what a reasonable price is for a certain item. In revenue agreements, the fair value price is used to allocate revenue.
In the diagram, the Sales Order is shown as a starting point, but revenue recognition might alternatively begin with a Journal Entry, Return Authorization, Project, or other sources.
For more information, you can visit the links below:
- NetSuite’s Revenue Recognition page
- NetSuite’s article on “Recurring 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 is suited for your company, do not hesitate to contact us.