Revenue Recognition

This article applies to the Revenue Recognition View of revenue in ScaleXP.   

• This view allocates revenue according to service start and end dates;
• Full months are allocated evenly across months while start and end months are allocated proportionately by number of days in the month.

This allocates revenue in line with the dates of service provided, as specified for each invoice line item, irrespective of invoice date.

For information on how ScaleXP reads dates from text in invoices, see How ScaleXP reads dates 

Whenever specific start and/or end dates are included, revenue is spread proportionally over the first and last months, using the precise number of days in each of those months.   

If no specific dates or time periods are provided, the invoice is fully allocated to the month of issue. 

You may wonder why all full months receive the same amount of revenue, rather than a daily allocation.  This is done intentionally to avoid showing less revenue to short months, such as February, during annual contracts.

Detailed Examples

See the below detailed examples, shown in four steps.

Step 1:  Calculate the revenue allocation for the first month of a contract

• First, count the days in this month included in the contract.  Make sure you include the day the contract starts.
• Then calculate the % of days in this month that receive revenue.  

Please note that the day that the contract starts is included, so in the middle of the month, the number of days can be 1 higher than expected.  

Step 2:  Calculate the revenue allocation for the last month of a contract

• This is the day of the month the contract ends.
• To calculate the %, just divide this number by the days in the month
• Example 1:  A contract ends on 28th:
  • In a month with 28 days, this is 100% of the month
  • In a month with 31 days, there are 28 days of revenue, so 90% of the month
• Example 2: A contract ends on 27th of the month
• In a month with 28 days, 96% of the month
• In a month with 31 days, 87% of the month

Step 3:  Count the full months, excluding the start and end month.  Allocate 100% of the revenue to each of these months.  

Please note that all full months receive the same allocation of revenue.  This is to ensure that short months, such as February, do not receive less revenue in an annual or quarterly contract.

Step 4:  Allocate the revenue amount (in £, $) to each month

This is done by adding the % mentioned above and then allocating the revenue by month.

• In an annual contract, starting on 1 January and ending on 31 December, this will result in each month receiving the same revenue. 

Foreign Currency Translations

In translating invoice line items for Revenue Recognition to the currency of your accounting system, ScaleXP uses the same exchange rate as that used by your accounting system.

In consolidated companies with entities in multiple currencies, revenue in Revenue Recognition reports is translated from the subsidiary's currency to the parent's company at the exchange rate used in the month of invoice.

See FX Rates: What foreign exchange rate is being used? 

How does the system defer revenue?

ScaleXP will automatically recognise multi-month invoices and spread or defer the revenue over the relevant period. 

This is fully automated based on the invoice line description.

To see revenue allocated by month, go to Customers (top bar)>  1. Revenue Recognition (or other standard format report) (REVENUE: left sidebar)> Revenue (top row of data).  

To see IFRS / GAAP reporting options for back dated revenue, see How to set journals to IFRS or GAAP revenue recognition rules so that backdated revenue is recognised at time of invoice 

If you want to modify the date that an invoice has been deferred, see How can I check and/or change the way a customer’s invoice is allocated? 

The Deferred Revenue Journal (REPORTS: left sidebar, bottom) provides the information to produce a draft journal in your accounting system.    See Deferred Revenue Journal: How to write deferred revenue journals to Xero or QuickBooks