Revenue recognition (IFRS 15)

Requirement

Various rules determine when a revenue occurs, which is most commonly after the goods or services have been delivered or provided to the customer. Three areas in the ERP require extra attention:

• Cash discount – sales with cash discount reduce the recognized revenue. At period end or at year end, the open invoices that include the future cash discounts must be evaluated. At period end, the amount of the potential cash discount on these invoices must be accrued. This amount is accounted as a reduction of the already reported or entered sales revenues.
• Milestones – revenue on a longer-term customer project is recognized after the agreed milestones or stages in the contract have been reached and when such revenue must be accounted or created.
• Deliveries with delivery terms – if, according to the delivery terms, the sales include a delivery to the customer, then the related revenue can be accounted only after the delivery has been completed.

M3 solution

These requirements are supported by specific functions in M3:

• Cash discounts – open invoices at period end and accruals for the cash-discount part are evaluated by a specific routine.
• Milestone – if the project order management functionality is used, then the recognition of costs and revenues is handled by M3. For service agreements, the decision is manual.
• Deliveries – delivery is handled by the proof-of-delivery function in M3. Invoicing occurs only after the confirmation of goods receipt.

Configuration guidelines

See ‘Revenue Recognition for Prompt Payment Discounts’ in the M3 Business Engine User Documentation Infocenter. See also NCR 9994.