Agenda

Understanding Deferred Revenue and COGS accounting

Steps involved in Deferred Revenue and COGS accounting

Understanding Deferred Revenue and COGS

accounting

The basic fundamental behind the enhancement is that the COGS is now directly matched to the Revenue.
The Matching Principle is a fundamental accounting directive that mandates that revenue and its associated cost of goods sold must be recognized in the same accounting period. This enhancement will automate the matching of Cost of Goods Sold (COGS) for a sales order line to the revenue that is billed for that sales order line.

Deferred Revenue and COGS accounting

Step:1
When a Sales order is shipped the following accounting takes place: Inventory Valuation Account: Credit. Deferred COGS account: Debit Once the revenue is recognized, the user need to decide the percentage he/she wish to recognize to the Revenue. A COGS recognition transaction will be created to reflect a change in the revenue recognition percentage for a sales order line.

Deferred Revenue and COGS accounting

Step:2
Run the Collect Revenue Recognition Information program. This program will collect the change in revenue recognition percentage based on AR events within the user specified date range.

Deferred Revenue and COGS accounting

Step:3

Run the Generate COGS Recognition Events. This program will create the COGS recognition transaction for each sales order line where there is a mismatch between the latest revenue recognition

percentage and the current COGS recognition percentage.

Deferred Revenue and COGS accounting

Step:4

The distribution for the COGS Recognition transaction associated with the Sales Order transaction now would be as follows:

Deferred COGS:

Debit revenue percentage COGS: Credit (Actual revenue percentage)

Deferred Revenue and COGS accounting Step:5

Essentially the recognized COGS balance is to move the value from Deferred COGS to COGS. This particular COGS recognition transaction actually correspond to a revenue recognition percentage change. Navigate to: Cost > View Transactions > Material Transactions > Distributions to view the Transactions.

Deferred Revenue and COGS accounting Step:6

Once the whole cycle is complete Distributions for the transaction will have 2 lines: Transaction 1: Inventory Valuation account: Credit. (Item_cost) Deferred COGS account: Debit (item_cost) Transaction 2: Deferred COGS: Credit (Actual revenue percentage) COGS: Debit (Actual revenue percentage)