Products

Products Industries
Industries Services
Services and Support
Support Training
Training Community
Community Developer
Developer

Partner
Partner About
About

Ask a Question Write a Blog Post Login / Sign

Sanil Bhandari
September 13, 2016 3 minute read

Revenue Accounting and Recognition (RAR) Part-1

Follow RSS feed Like

18 Likes 24,941 Views 24 Comments

Revenue Recognition in SAP

Revenue Recognition is the process of recognizing the income, when a sale contract is fulfilled and ownership of
goods/service are transferred from the seller to the buyer or customer. Traditionally revenue recognition happens in SD
through the billing invoice functionality in SAP. The traditional Revenue recognition functionality in SD works as below:
SAP SD offers an integrated Revenue recognition based on SD Documents. With SD Revenue Recognition, invoices are
posted to Deferred Revenue (depending on Previous Recognized Revenue Items) with recognized revenue also posting to
COPA.

What Changes with New Updates on IFRS 15?

IFRS 15 is an accounting standard promulgated by IASB providing guidance on accounting for revenue from Contracts with
customers. It was adopted in 2014 and will become effective as mandatory for US and most of Europe from January 01,
2018. The IFRS 15 has new disclosure changes, both quantitative and qualitative information about the amount, timing and
uncertainty of revenue from Contracts with customers. The New IFRS 15 and ASC 606 revenue accounting standard
basically follows a five step model for recognition of revenue:
Drawbacks in Existing SD Revenue Recognition Process:

1) No multiple Element Arrangements: The traditional Revenue Recognition in SD does not offer allocation of transaction
price, one of the fundamental step for New updates on IFRS 15. Revenue is always recognized separately for every SD
Order Item according to its pricing conditions.

2) Parallel Accounting: The traditional Revenue Recognition cannot manage different accounting principles. With New GL,
it makes an accounting postings to all the ledgers at the same time (Ledger group is blank on the accounting document
header), negating automation and increasing the reconciliation efforts for accounting teams.

3) Cost Recognition: COGS is not reconciled with revenue recognized. However, SD can recognized the cost only at the
time of PGI or billing depending on the set up of pricing schema in SD
4) Disclosures and Reporting capability: The traditional SD Revenue Recognition is not capable of meeting the new
disclosure requirements for IFRS 15

Impact of the changes Accounting Standard IFRS 15 on Customers

The new accounting standards is a mandatory rule for US and Europe. Early adopters of IFRS can start earlier. The
customers most impacted by the New Standard are as below:

Example of Revenue Recognition in case of Multiple Arrangements

Mr A buys a Phone for $ 1 from a telecom company with a guaranteed Service Contract of $ 20 per month for 24 Months.
The total Transaction price for phone and service contract for Mr A will be = (1+(20×24)=$ 481)

Mr A can also buy the Mobile Phone on a standalone basis for $180. Mr A can also enter into a standalone service contract
with the telecom company for $16 per month for 24 Months (Total Transaction Price = 16×24=$ 384)

In this case, if Mr A purchases the service contract and phone from the telecom company, the charge for the mobile and
service contract has to be allocated over a period of 24 Months to recognize revenue as per IFRS 15.

Allocated Price of Mobile Phone = Standalone Selling Price of Mobile Phone/(Sum of all Stand Alone Selling Price)*
Complete Transaction Price

The SAP Revenue Accounting and Recognition Component is based on the 5-step model of IFRS 15 and also meets the
requirement of FAS 2014-09/ ASC 606:

Step 1: Revenue Accounting combines items from different operational systems like SD, CRM or non SAP Systems in one
single revenue accounting contract. The contract is the operational object for the determination and allocation of
Transaction Price

Step 2: The Performance Obligation (POB) is the level, where the Standard Selling Price (SSP) is determined or defined,
price is allocated and fulfillment (POC) is determined. Most of the times it would correspond to a line item of an
operational contract, but it may also be a combination of several items Eg, from a Sales BOM, implicit obligation ( Eg,
Upgrade for a licensed Software)
Step 3: The transaction price is determined from Pricing Conditions of operational document such as a sales order.

Step 4: The Transaction Price is allocated to POB of a contract on a relative SSP basis

Step 5: Revenue is recognized on the completion of POB. The completion can be defined as an event or over time. The over
time fulfillment can be calculated based on time based or based on Percentage of Completion.

With the above design principles, the SAP Revenue accounting and recognition (RAR) Component has been introduced. It
is an optional download component on SAP ERP (ECC). The Component is the only possible component for Revenue
Recognition in SAP S/4HANA Finance

The component can be downloaded by any customer with SAP S/4HANA

The Current version of RAR available is 1.1 and version 1.2 has been released to a select customers.

In the next part of this series I will talk about the set up of SAP RAR 1.1 and the accounting flow for revenue recognition
through the same.
Alert Moderator

Assigned tags

FIN (Finance) | SAP S/4HANA Finance | SD (Sales and Distribution) | enhancement | erp financials |

View more...
FIN (Finance) | SAP S/4HANA Finance | SD (Sales and Distribution) | enhancement | erp financials |

View more...

Related Blog Posts

Overview of the Deployment Options for IFRS 15 / ASC 606 Projects for SAP Customers
By Former Member , Aug 09, 2017

Summary of the features and functionality of SAP Revenue Accounting and Reporting (RAR) - Updated for RAR 1.3
By Former Member , Jul 28, 2016

Do you have any silver bullets for IFRS 15 / ASC 606?

By Former Member , Aug 09, 2017

Overview of the Deployment Options for IFRS 15 / ASC 606 Projects for SAP Customers
By Former Member , Aug 09, 2017

Summary of the features and functionality of SAP Revenue Accounting and Reporting (RAR) - Updated for RAR 1.3
By Former Member , Jul 28, 2016

Do you have any silver bullets for IFRS 15 / ASC 606?

By Former Member , Aug 09, 2017

Related Questions

Reporting in SAP Revenue Recognition

By Giuliano Gaudino , May 12, 2017

Perform VF44 always after VF01

By Former Member , Jan 24, 2017

SAP Revenue Accounting and Reporting V 1.2

By Former Member , Feb 02, 2017

Reporting in SAP Revenue Recognition

By Giuliano Gaudino , May 12, 2017

Perform VF44 always after VF01

By Former Member , Jan 24, 2017
SAP Revenue Accounting and Reporting V 1.2
By Former Member , Feb 02, 2017

24 Comments

You must be Logged on to comment or reply to a post.

Former Member

September 13, 2016 at 2:40 pm

Hi sanil,

This is very informative. Thanks for Sharing.

Regards,

Jignesh

Like (1)

Sanil Bhandari | Post author

September 13, 2016 at 2:42 pm

Thanks a lot Jignesh Kansara

Regards

Sanil Bhandari

Like (0)

Former Member

September 14, 2016 at 12:22 am

Hi Sanil,

Really good insides provided. Keep enlightening…!

Best regards,

Aditya
Like (0)

Sanil Bhandari | Post author

September 14, 2016 at 3:11 am

Thanks a lot Aditya Kotak

Regards

Sanil Bhandari

Like (0)

Former Member

September 15, 2016 at 4:48 pm

Hi Sanil,

Useful information. Thanks a lot.

Like (0)

Sanil Bhandari | Post author

September 16, 2016 at 3:14 am

Thanks a lot Narayana Murty Panyala

Regards

Sanil Bhandari

Like (0)

CA. Prasad Atmakuri

September 22, 2016 at 10:53 am

Hi Sanil,

Useful information. Thanks a lot for sharing

Looking forward for your next blog

Thanks & regards

CA.Prasad Atmakuri

Like (0)

Sanil Bhandari | Post author

October 16, 2016 at 1:46 pm

Thanks a lot

Regards

Sanil Bhandari

Like (0)

Former Member

December 9, 2017 at 2:11 am

Super jee..Super Jee

Like (0)

Da Thang

October 21, 2016 at 1:18 am

Hi Sanil,

It’s very useful information. thx for sharing, and we are looking forward for your next blog

Like (0)

Former Member

November 4, 2016 at 1:14 am

hi Sanil

With RAR 1.2, can this be used with Classic GL? Not sure how it fits with the Ledger approach

Please advise

Regards
Trevor

Like (0)

Former Member

March 12, 2017 at 9:03 pm

Thanks Sanil. This is helpful post.

1 qq . Can we implement full functionality of RAR with Central Finance ? or does it require the full Simple
Finance ?

Like (0)

Sanil Bhandari | Post author

April 11, 2017 at 7:53 am

Hi

RAR should ideally implemented with logistics integration as well to recognize out of box functionality.
With CFIN, it may not work completlty

Regards

Sanil

Like (0)
 Former Member

April 12, 2017 at 8:57 pm

Thanks Sanil for information. Do you have any further additional information around the key risk areas
from accounting stand point, IMG changes, tcode affected from RAR ?

Like (0)

Paulo Vitoriano

May 17, 2017 at 8:29 am

Hi Sanil,

Can RAR work without SD module or that is a pre-requisite?

Thanks,

Paulo

Like (0)

Former Member

September 3, 2017 at 10:15 am

Hi Sanil,

Wonderful example!!!

Thanks,

Farhan

Like (0)

Former Member

January 4, 2018 at 12:46 pm

Thank you for your article on RAR.

You said that in the next part of this series you will talk about setting up SAP RAR 1.1 and the accounting
flow for revenue recognition across the same.

Did you do it?

If so, I would like to read it to learn how to implement SAP RAR in SAP Cloud

Than you

Like (0)

Former Member

January 16, 2018 at 7:29 am

Hello Sir,

Please help me with this doubt. I want to link POB in SAP ECC to Sales Contract of SAP CRM.How to do
that.I just need table where it is maintained from SAP BW reporting point of view

Like (0)

Former Member

March 30, 2018 at 1:46 am

Hi Sanil,

This is really very good article and very informative.

When are you releasing the Part II?

Like (0)

Sanil Bhandari | Post author

March 30, 2018 at 2:14 am

Thanks a lot Former Member

I should be publishing it end of next month

regards

Sanil

Like (0)

Former Member

May 8, 2018 at 8:57 pm

Great Blog Sanil ! Thank You!!

Can you please post the next blog in the series?

Thanks,

Chandra

Like (0)

Former Member

May 8, 2018 at 9:43 am

Hi Sanil,

Thanks for writing this blog and sharing knowledgeable info. Do you have second part as well? I need to
know what all configuration is required in ECC for RAR..would be great if you can provide some pointer.
Regards,

Seema

Like (0)

Eric Ching

May 31, 2018 at 2:15 pm

Hi Sanil,

Question regarding the Cost Recognition. Is it really required to send an SD02/SDFI to trigger the Cost
Correction? If my POB is time-based and does not require a Goods Issue, what is the best way to make
RAR create a Cost Correction?

Thanks in advance.

Eric

Like (0)

Giuseppe Sorace

July 23, 2018 at 3:55 pm

Hi Sanil,

Your article is enlightening. I would like to ask if there are more articles on RAR please. You were
mentioning at the end of your article a follow up describing the accounting flow.

Thank you,

Giuseppe

Like (0)
 Share & Follow

Privacy Terms of Use

Legal Disclosure Copyright

Trademark Préférences de cookies

Préférences de cookies

Sitemap Newsletter