NetSuite’s Advanced Revenue Management feature automates revenue forecasting, allocation, recognition, reclassification, and auditing using a framework for event handling governed by business rules. It conforms to ASC 606, which is the new revenue recognition standard that applies to all public, commercial, and nonprofit organizations that engage in contracts with customers to transfer products or services.
Summary of key concepts
The diagram below shows the NetSuite Advanced Revenue Management processes per the ASC 606 standard.
In this article, we will cover each of the steps in this process.
This article will also cover these topics:
Using Rules
Using Rules
Key benefits of NetSuite Advanced Revenue Management
- Accounting departments can devote more time to investigating policy deviations due to spending less time on routine tasks like revenue management and recording.
- The feature follows current and future recommendations and requirements set by the industry.
- It provides the ability to drill deep into the original sales document or transaction to examine its influence on revenue and revenue projections that react to accurate postings. This enables the presentation of an updated predicted revenue picture for future periods.
Enabling the Advanced Revenue Management feature
To enable the feature, navigate to Setup > Company > Setup Tasks > Enable Features. Select Advanced Revenue Management from the Accounting subtab. Ensure that the Accounting Period is also checked, then click Save.
When the Advanced Revenue Management feature is enabled, revenue for all items is deferred until revenue recognition journal entries are made. By default, item records employ the system-generated deferred revenue account and the Default Standard revenue recognition rule. To complete item configuration, users must select a value for the Create Revenue Plans On field within the item record.
NetSuite will also automatically add the following system accounts:
- Deferred Revenue (for contract liabilities)
- Deferred Revenue Clearing
- Unbilled Receivable (for contract assets)
- Revenue Arrangement (for a non-posting account)
Revenue management roles and permissions
When advanced revenue management is enabled, two roles are added to the user’s account:
- Revenue Manager: Defines important revenue recognition configurations and rules while monitoring and evaluating revenue performance via various revenue reports.
- Revenue Accountant: Processes daily revenue transactions, revenue recognition plans, and journal entries.
The specific permissions can be configured, but by default, both roles have complete access to revenue recognition processes. Both lack the Journal Approval permission necessary to approve journal entries when the accounting setting Require Approvals on Journal Entries is selected.
The revenue manager’s permissions for configuration and personalization surpass those of the revenue accountant. The permissions listed below are unique to Advanced Revenue Management.
Item types that can be configured within Advanced Revenue Management
Advanced Revenue Management can be configured for the following item types:
- Assemblies, including serialized and lot-numbered components
- Download items
- Kits/packages
- Serialized and lot-numbered inventories
- Items not in stock for sale or resale
- Other selling or resale charges
- Services for sale or resale
Changes to item configuration do not affect revenue elements established before the change.
NetSuite Advanced Revenue Management process
This section provides a more detailed explanation of NetSuite Advanced Revenue Management processes in relation to the ASC 606 standard.
1. Revenue Arrangement
This step includes non-posting transactions that outline customer performance obligations for revenue allocation and recognition. Advanced Revenue Management generates revenue arrangements automatically from established revenue sources, such as approved sales transactions. Multiple revenue sources’ arrangements can be integrated.
2. Revenue Elements
This is the stage when the performance requirements are determined. Each revenue element represents a performance obligation and is tied to a revenue arrangement as a line item.
3. Revenue Recognition Rules
These rules are used to establish revenue recognition patterns. They consist of the recognition method, amount source, and start and end dates of sources. Revenue recognition rules specify how revenue recognition plans are formed following the creation of a revenue element.
4. Revenue Recognition Plans
These are records that indicate the posting periods during which the amount is allocated in each period and revenue is recognized. Revenue plans are developed from revenue recognition rules. There may be a forecast plan and one or more real plans for each revenue aspect. Actual revenue projections govern the recording of revenue. Users must generate journal entries for revenue recognition before posting the revenue to the general ledger.
5. Revenue Recognition
When a company has fulfilled its obligation to provide a service or product to a customer, the revenue recognition process is complete, even if payment has not yet been received in full.
Other Advanced Revenue Management features
Fair Value Price List
This list permits users to establish unique fair value standards for various items and item revenue categories. To generate the list, users must add records of fair value prices. In revenue arrangements, the fair valuations for goods are utilized to allocate revenue.
Month-End revenue processing
Making month-end adjustments to deferred revenue and establishing revenue recognition journal entries are both parts of the month-end revenue processing process. The term “Reclassification” describes the monthly end-of-the-month changes to deferred revenue. Four phases make up the month-end revenue process:
- Revenue Recognition Journal Entries: Users must generate the appropriate journal entries to post revenue to the general ledger. Although the creation of revenue recognition journal entries is part of the month-end process, users can run it at any time, including more than once a month.
- Reclassification of Deferred Revenue: After posting the month-end revenue recognition journal entries, run the reclassification journal entry process to reclassify deferred revenue for revenue arrangements. To achieve correct results in later periods, users must write deferred revenue reclassification journal entries each month.
- Recalculating Revenue Forecast Plans: Users can recalculate revenue forecast plans to ensure that they match the actual revenue plans for the revenue element’s recognized and planned revenue. If the plan hasn’t been made yet, the amount for the period is zero. When recalculating, NetSuite changes the revenue forecast plans to match the actual plan amounts as of the selected period. The change is made using the forecast method on the revenue forecast plan.
- Deferred Revenue Waterfall Report: Run this report after creating the month-end revenue recognition and deferred revenue reclassification journal entries. The contents of the report can change over time, so run the report as of the current period and save it for future review.
Reports for Advanced Revenue Management
There are different kinds of Advanced Revenue Management reports, which are accessible via the Reports > Revenue menu and the Revenue group on the Reports page. The Revenue tab and the Revenue page are also accessible to users with Revenue Accountant or Revenue Manager credentials.
The following Advanced Revenue Management reports are available.
Reports related to revenue reconciliation
- Deferred Revenue by Customer Report
- Deferred Revenue by Item Report
- Revenue by Customer Report
- Revenue by Item Report
- Billing and Revenue Summary Report
- Deferred Revenue Rollforward Report
- Deferred Revenue Waterfall Summary Report
- Deferred Revenue Waterfall Detail Report
Reports related to expense reconciliation
- Deferred Expense Waterfall Summary Report
- Deferred Expense Waterfall Detail Report
- Deferred Expense Rollforward Report
Reports used to forecast revenue
- Revenue Recognition Forecast Summary Report
- Revenue Recognition Forecast Detail Report
Reports used for revenue recognition, billing, foreign currency adjustments, and revenue reclassification
- Deferred Revenue Reclassification Activity Report
- Deferred Revenue Reclassification Report
Limitations
Fair Value Price List
This list permits users to establish unique fair value standards for various items and item revenue categories. To generate the list, users must add records of fair value prices. In revenue arrangements, the fair valuations for goods are utilized to allocate revenue.
Month-End revenue processing
Making month-end adjustments to deferred revenue and establishing revenue recognition journal entries are both parts of the month-end revenue processing process. The term “Reclassification” describes the monthly end-of-the-month changes to deferred revenue. Four phases make up the month-end revenue process:
- Revenue Recognition Journal Entries: Users must generate the appropriate journal entries to post revenue to the general ledger. Although the creation of revenue recognition journal entries is part of the month-end process, users can run it at any time, including more than once a month.
- Reclassification of Deferred Revenue: After posting the month-end revenue recognition journal entries, run the reclassification journal entry process to reclassify deferred revenue for revenue arrangements. To achieve correct results in later periods, users must write deferred revenue reclassification journal entries each month.
- Recalculating Revenue Forecast Plans: Users can recalculate revenue forecast plans to ensure that they match the actual revenue plans for the revenue element’s recognized and planned revenue. If the plan hasn’t been made yet, the amount for the period is zero. When recalculating, NetSuite changes the revenue forecast plans to match the actual plan amounts as of the selected period. The change is made using the forecast method on the revenue forecast plan.
- Deferred Revenue Waterfall Report: Run this report after creating the month-end revenue recognition and deferred revenue reclassification journal entries. The contents of the report can change over time, so run the report as of the current period and save it for future review.
Reports for Advanced Revenue Management
There are different kinds of Advanced Revenue Management reports, which are accessible via the Reports > Revenue menu and the Revenue group on the Reports page. The Revenue tab and the Revenue page are also accessible to users with Revenue Accountant or Revenue Manager credentials.
The following Advanced Revenue Management reports are available.
Reports related to revenue reconciliation
- Deferred Revenue by Customer Report
- Deferred Revenue by Item Report
- Revenue by Customer Report
- Revenue by Item Report
- Billing and Revenue Summary Report
- Deferred Revenue Rollforward Report
- Deferred Revenue Waterfall Summary Report
- Deferred Revenue Waterfall Detail Report
Reports related to expense reconciliation
- Deferred Expense Waterfall Summary Report
- Deferred Expense Waterfall Detail Report
- Deferred Expense Rollforward Report
Reports used to forecast revenue
- Revenue Recognition Forecast Summary Report
- Revenue Recognition Forecast Detail Report
Reports used for revenue recognition, billing, foreign currency adjustments, and revenue reclassification
- Deferred Revenue Reclassification Activity Report
- Deferred Revenue Reclassification Report
Limitations
There are some actions that the Advanced Revenue Management feature does not support:
- Revenue recognition rules cannot be edited after they have been used to generate a revenue recognition plan. The exception is that the rule name can be changed.
- Users cannot delete revenue recognition rules after they have been used.
- Month-end revenue processing is not included in the Period Close Checklist.
Best practices
Following these guidelines will ensure accurate results:
- Use the Fair Value Price CSV Import feature to create a Fair Value Price list. This import function is available when the Advanced Revenue Recognition feature is enabled.
- When doing month-end revenue processing, always run the revenue recognition first, followed by the deferred revenue reclassification.
- If revenue forecast plans are being used, recalculate the forecast plans after running revenue recognition and deferred revenue reclassification for the period to ensure that forecast reports are accurate.
- To create journal entries for revenue recognition in a reopened period, users must undo any pending mergers to unlock the locked revenue arrangements.
- Ensure that all journal entries relating to revenue recognition are approved before reclassification if the accounting preference Require Approvals on Journal Entries is enabled. This accounting preference is independent of workflows. If the journal entries for revenue recognition and prior period reclassification are not approved beforehand, the reclassification adjustments will be inaccurate.
- Set up a schedule to run the revenue recognition journal entries and reclassification journal entries.
- Check the Eliminate Intercompany Transactions box for all deferred revenue accounts used for reclassification if the Automated Intercompany Management function is enabled.
Conclusion
When goods and services are delivered at different times in different accounting periods, it can be challenging to manage revenue effectively. Whether a sale involves a single performance obligation, a series of responsibilities spread over time, or a collection of obligations, NetSuite’s Advanced Revenue Management tool simplifies the complexities of evolving revenue recognition requirements.
