Using Historical Rates for Service Contract Revenue Recognition

This section explains how the application calculates and recognizes service contract revenue using historical currency exchange rates derived from posted contract installments.

When calculating contract revenue for a fiscal period, the application uses the home currency amount from the invoiced installment to retrieve historical exchange rates. Exchange rates defined at the contract (transaction currency) level are not used for this calculation.

Invoicing Contract Installment

When the billable line is processed in the Contract Installments (tsctm4100m000) session:

  • The invoice amounts are calculated in home currency using the date applicable on the invoice.
  • The contract installment is updated with the invoice or revenue amount in the home currency.
  • The installment Status is set to Posted.

The net installment amount is invoiced only in the transaction currency.

If the Recognize Revenue field is set to Direct by installment in the Contract Management Parameters (tsctm0100m000)session, an integration transaction is generated in the Invoicing 360 (cisli3600m000) session with the Source Document type field set to Service Contract.

Calculating Contract Revenue

The contract revenue amount expressed in the transaction currency is used to calculate the revenue amounts in the company's home currency, when contract revenues are calculated for a revenue periods. To calculate the contract revenues, the currency rates are applied from contract installment posted in the Contract Installments (tsctm4100m000) session.

To recognize the contract revenue, the application searches for the posted installment, based on the entire contract or individual contract configuration:

  • If installments are not linked to configuration lines, all posted installments are considered.
  • If installments are linked to the contract configuration lines, the application considers only the contract installments linked to configuration lines.

    At the time of revenue recognition, the change number and configuration line number of the posted contract must be same as the change number and configuration line number of the revenue line.

Note: Revenue can be recognized only if the Installment Type field in the Contract Installments (tsctm4100m000) session is set to one of these values:
  • Periodic Installment
  • Manual Installment
  • Closure Installment

The application determines the currency rates for revenue calculation using this logic:

  • When contract installments are available, the application selects the first posted contract installment that allows revenue allocation. If no previous revenue periods exist, revenue is calculated in home currency using the exchange rates from this first posted installment.
  • When contract installments are not available, the currency rates for calculating the revenue amount in home currency are retrieved based on the new rate on the specific date and the contract's exchange rate type.

Calculating Contract Revenue Manually

When the contract revenue is calculated manually:

  • The allocations are not based on the posted contract installments.
  • You must specify the revenue amount for the home currencies when you manually define the revenue amount in the transaction currency.
  • The currency rates (based on the system date) are used for calculating the revenue amount in the home currency.

Recognising Revenue

When the contract revenues are recognised:

  • The revenue line Status is set to Recognized in the Contract Revenues (tsctm4160m000) session.
  • A financial integration transaction is created in the Invoicing 360 (cisli3600m000) session with the Source Document type set to Service Contract.

Close Service Contract

You can close the service contract only if:

  • The Status of all the contract installment is set to Posted or Canceled in the Contract Installments (tsctm4100m000) session
  • The Status of the contract revenue is set to Postedin the Contract Revenues (tsctm4160m000) session.