Applying the rules

To ensure accurate revenue recognition, it is important to apply the appropriate rules to each of the products you offer, such as plans, items, add-ons, and set-up fees. In the Recurly App, you can easily configure the way you want to recognize revenue and specify the liability and revenue accounts to be used. These fields are available for all transactions, providing flexibility and customization.

By selecting the right rules for each product, you can align revenue recognition with your business requirements. If certain products deviate from the default settings, you can easily modify the Performance Obligation (POB) or account codes to reflect the desired configurations.

How to set up initial configurations

Setting up the initial configuration for Recurly's revenue recognition is essential to ensure accurate revenue recognition data. Follow these steps to successfully set up your configuration:

Step 1: Create accounting codes & determine the defaults.
Step 2: Determine performance obligations & accounting codes on transactions.
Step 3: Test and Validate.

Create Accounting Codes & determining the defaults

To accurately track revenue and deferred revenue in your accounting system, it's essential to create accounting codes and map them to the correct revenue and deferred revenue accounts. Follow these steps to set up accounting codes:

1. Accessing the accounting codes

In the Recurly application, navigate to Configuration → General Ledger Accounts.

2. Creating Accounting Codes

On the General Ledger Accounts page, click the "New Accounting Code" button to create a new accounting code. Enter a code and description for the accounting code you wish to create.

3. Setting Up the Accounting Code Type

Select whether the accounting code is for Revenue or Deferred Revenue. This selection determines the type of revenue that will be tracked in your accounting system.

4. Saving the Accounting Code

Once you've entered the code, description, and selected the accounting code type, save the new accounting code. It will now be available to assign to performance obligations.

5. Editing Accounting Codes

From the Accounting Codes page, you can also edit existing accounting codes. To edit an accounting code, select the code you wish to modify, make the desired changes, and save the updated code.

6. Determining the default account codes

On the Business entities page, select from your list of accounting codes to set the default revenue and liability account codes.

Applying performance obligations and accounting codes to products

After setting up the accounting codes, the next step is to apply the appropriate POB and account codes to existing products - plans, items, gift cards, shipping and credits and any new products.

Performance Obligations

For each product you can select the appropriate performance obligation - Point in Time, Over Time (Daily), Over Time (Partial Monthly) or Manually Recognize.

Default POB

Default settings: A quick overview

Upon initializing our system, certain preset configurations, known as "default settings," are automatically applied to elements like plans, items, gift cards, and shipping details. These settings are designed to provide a standardized starting point for users.

However, if these default configurations don't suit your needs, they can be easily adjusted. Additionally, when you make changes to a product's main information page and save it, these default settings will be reapplied.
In essence, while these settings offer a foundational setup, you have the flexibility to tailor them according to your preferences.

The default setting for each transaction is as follows:

• Transactions within a plan:
  • Setup fee: Point in Time
  • Plan billing: Over Time (Daily)
  • Add-ons: Over Time (Daily)
• Item: Over Time (Daily)
• Charge: Point in Time
• Shipping method: Point in Time
• Gift cards: Point in Time
• Credit: Point in Time

Account codes

Account codes are automatically set to the default accounts as defined in the business entities page. However, merchants have the flexibility to change these account codes on individual product pages as needed to align with their specific requirements and apply the desired codes to any new products.

Configuring Recurly revenue recognition standard

Follow these steps to configure performance obligations and accounting codes for your products:

1. Accessing the Product Page

In the Recurly application, under Configuration, navigate to the main page and select edit for the desired product (plans, items, shipping, gift cards, etc.) that you want to include in revenue recognition. This can be accessed through the left-hand menu.

2. Selecting the Performance Obligation

For each transaction, including items, add-ons, or setup fees, as well as on the product page, navigate to the revenue recognition section. Here, select the appropriate performance obligation from the "performance obligation" dropdown. The available options are Overtime (Daily), Overtime (Partial Monthly), Point in Time, or Manually Recognize.

3. Selecting the Accounting Codes

After selecting the performance obligation, choose the Liability Accounting Code and Revenue Accounting Code that apply to the product. This can be done by selecting the "Accounting Code" dropdown for each and choosing the desired account code.

4. Saving the Rules

Once you've selected the performance obligation and accounting codes, save the rules by clicking the "Save" or “Save Changes” button at the bottom of the page. These rules will be applied to the product and used for future revenue recognition calculations.

5. Editing Rules

If needed, you can edit existing rules from the configuration page. Simply select the product you want to modify, make the desired changes to the performance obligation or accounting code, and save the updated rules. When you edit a rule, it changes any future actions.

Testing and validating

After setting up the initial configuration and applying performance obligations and accounting codes to your products, it is crucial to test and validate the revenue recognition process. This step ensures that the system accurately calculates and recognizes revenue based on your defined rules. Here's how you can test and validate the configuration:

1. If you have a mirrored sandbox, create test transactions

Generate test transactions that represent various scenarios and revenue recognition scenarios. This can include different types of subscriptions, add-ons, one-time charges, and any other relevant revenue-generating activities. It is important to use the mirrored sandbox to ensure that you can safely test and validate these transactions without impacting your live site.

2. Monitor revenue recognition

Utilize the reporting to observe how the system recognizes revenue for the test transactions, or how your live transactions are being recognized. Pay close attention to whether the revenue is recognized over time (daily or partial monthly), at a specific point in time, or manually. Also ensure the revenue is applied to the right accounting codes.

3. Verify accounting entries

Check the generated accounting entries to ensure they align with your accounting standards and codes. Verify that the revenue and deferred revenue accounts are accurately updated based on the recognized revenue.

4. Compare with expected results

Compare the system's revenue recognition results with your expected results. Ensure that the recognized revenue matches your business expectations and follows the appropriate revenue recognition rules and guidelines.

5. Resolve discrepancies

If any discrepancies or issues are identified during the testing and validation process, investigate and resolve them. Review the configuration settings, performance obligations, and accounting codes to ensure they are correctly defined and applied.

6. Repeat and fine-tune

Perform multiple rounds of testing and validation, making adjustments and refinements as needed. This iterative process helps fine-tune the revenue recognition setup and ensures accurate results across different scenarios.