Deferred Revenue

Deferred revenue can be a substantial issue for companies that sell bundled products and services under a single contract. Scheduling, allocating, and recognizing deferred revenue in accordance with ever more complex accounting guidelines and legislative requirements is a source of pain for many businesses because traditional systems do not handle deferred revenue very well.

Business models involving complex pricing schedules, multiple currencies, VSOE (vendor specific objective evidence), and percent complete revenue recognition are particularly challenging. The complex accounting calculations required for compliance with guidelines such as SOP 97-2, SOP 98-9, SOP 81-1, SAB 101/ SAB 104, and EITF 00-21, can impact multiple elements, future recognition schedules, and multiple general ledger accounts. As a result, determining how bookings flow through deferred revenue to your financial statements is a labor-intensive job.

With Softrax, deferred revenue accounts are all managed automatically based on a single-point of entry for contract data. Once the contract or order is in the system, Softrax takes care of all the downstream deferred revenue issues including challenges such as:

• Allocation of component revenue based on SOP 97-2 VSOE (vendor specific objective evidence) requirements
• Calculating residual carve outs according to SOP 98-9
• Application of percent complete according to SOP 81-1
• Recalculating allocation across revenue categories based on pre-negotiated price triggers
• Forecasting the flow of revenue through deferred accounts into recognition schedules

These activities normally cause financial professionals to develop complex spreadsheets that are prone to error, undocumented and hard to audit. This on top of all the time it takes for manual data extraction, cleaning, combining, processing, validating, formatting, and reporting. With Softrax, your deferred revenue data is in one repository with annual schedules so you can see accurate and highly detailed views of how deferred revenue flows to your income statement. And your key analytical resources can spend less time figuring out what the right revenue recognition numbers are, and more time evaluating what they mean for your business.

Solution highlights

Completely automate revenue recognition accounting tasks Automatic general ledger mapping and monthly general ledger posting Automatically pro rate and allocate revenue according to contract updates, amendments, and renewals Establish recognition rules for deferred discounts based on dates, events, and percent complete values Integrate complex deferred revenue transactions with your GL

Easily create and manage deferred revenue schedules Automatically create deferred revenue schedules based upon product type, order type, revenue compliance rules Automatically move revenue from deferred to recognized accounts according to business rules – no need to back it out of the general ledger and manually re-allocate and re-key the data Built-in logic to address product, maintenance, services and bundled revenues

Enable more sophisticated reporting and forecasting Advanced reporting – revenue history and projection by product line, general ledger account, territory, etc. On line access to all revenue schedules by date range, product line, customer name, location, etc. Forecast revenue by product, general ledger account, customer, etc.

Support compliance with Sarbanes-Oxley, SEC and FASB Maintain “VSOE price books” with appropriate pricing ratios of all components to be shipped to the customer Automatically allocate revenues within each order as specified by the VSOE pricing ratios Automatically create deferred revenue schedules for any of the components Automatically recast revenue distributions based on new VSOE values