How to set up and use the new Revenue Recognition module in Dynamics 365

Microsoft released the Revenue Recognition module as part of its 2019 Wave 2 release. In this blog, we will walk through the nuances of enabling this module in Dynamics 365 Finance and Operations. A word of advice here—For the module to work optimally, you’ll need to have the 10.0.5 version of Dynamics 365 Finance and Operations—at the least. If you are on an older version, upgrading to this or the latest version is recommended.

Let’s start with the initial configuration of the module:

• Three new posting types in sales order postings:
  
• If revenue recognition is to be used on projects, additional project ledger posting setup:
  
  
• Rev rec > Setup > GL parameters:
  • Add new rev rec journal name
  • Add revenue reallocation ID number sequence
    
• Rev rec > Setup > Revenue schedules
  • Automatic hold – Will not recognize revenue until actual occurrence happens. User will manually take off hold and update date if necessary
  • Automatic contract terms – Will automatically set the contract dates on the line item to the SO header delivery date
  • Can set up monthly by days (%s based on # of days in each month) or monthly (evenly over # of months)
  • Can define additional schedules as necessary
    
• Ability to set up default revenue setup by item group (this will default onto new items setup with this item group)
  
• Update existing items:
  • Add revenue schedule to revenue fast tab
  • Update is revenue allocation active = yes, if item should be included in revenue allocation calculation
    
  • Sell > Revenue recognition > Revenue prices:
    
  • Set up revenue price (can be different from sell price based on FMV et
    
    • If revenue allocation is inactive, there is no need to set up this field. Revenue price will auto-default to be the sales price on the line item
      

Let’s now create and confirm a new Sales Order that will use revenue recognition:

• Item 1000 does not have a revenue recognition schedule and will be recognized at the time of invoicing
  • Unit price and revenue price = $1,900
• Item A0007 has a 12-month revenue recognition schedule
  • Unit price = $300
  • Revenue allocation price = $400
• Item S0001 will be recognized at three occurrences
  • Unit price = $250
  • Revenue allocation price = $220
• The revenue schedule for each item is defaulting from the item setup and can be updated at the time of SO creation:
  
• Confirm the sales order
• Select Manage > Revenue recognition > Revenue price allocation
  • You only need to view this form if revenue allocation was set to active on the item (if revenue price does not equal sales price)
  • All three items are included in the calculation (even if they are not on a revenue schedule) because they are part of the contract; also because we need to take all of the revenue prices into account to determine what revenue amount to recognize and what to defer
    
  • Total unit price = $2,450
  • Total allocation price - $2,520
  • Unit price/allocation price = Factor of .97
  • Allocation price x .97 = Allocation amount
    
• Manage > Revenue recognition > Expected revenue recognition schedule:
  • Only items with a revenue recognition schedule will be shown here
    

Invoice the sales order:

• There is no change to the packing slip postings for the sales order
  
• When the invoice is posted:
  • The packing slip is reversed as normal
  • The cost and revenue for any items with a revenue schedule is posted to the deferred accounts setup in the new item posting profiles
    

There are periodic tasks in order to post the deferred revenue:

• Revenue recognition > Periodic tasks > Revenue recognition schedule
  • Can update info here:
    • For installation update to take first occurrence off hold and update date to today
      
      
      
      
    • Users can manually update amount to release, which will auto-update remaining account
    • Can update contract terms from this form; will update schedules and dates. If revenue has already been posted, D365 will create reversing entries and new entries for the updated amounts
  • Can post revenue journal from this form:
    • Create journal
    • Update parameters
      
      
      
  • A journal is created in Revenue recognition > Journal entries > Revenue recognition journals
    • This will create a journal for all revenue within the dates from the parameters
    • Invoice 821 shows the deferred revenue for Item A0007 and S0001, as well as the deferred cogs for A0007
    • Journal will pull in any financial dimensions from the sales order (not just original entry)
      

Let’s say there is a new contract that has got signed for the same work as the previous sales order. You can create a new sales order for the same customer/contract or update an existing order:

• Revenue price allocation is blank because there is only one line item
• Manage > Revenue recognition > Reallocate price with new order lines
• Select the sales orders to reallocate
  
• Click update reallocation
  • Reallocation amounts are now updated as if four lines were in the original sales order
    
• Click expected voucher
  • This reverses original invoice and creates new accounting
  • Since AR does not change, the variance between the invoice amount and deferred revenue will be posted to the partial invoice revenue clearing account (new setup in item posting profiles)
    
• Click process to post reallocation
  • This will post to the AR module
    • • Reverses original invoice and creates a new invoice – the total AR hasn’t changed but offset revenue accounts has
      • Automatically settles original invoice and reversing, and only new invoice is now open
      • If payment has already been applied, it will get unsettled and resettled against new invoice
        

The revenue recognition module is a flexible framework that helps companies move away from multi-element orders. Instead, it enables them to recognize revenue price and schedule based on a set of company-specific and industry-specific guidelines.