Scope
What are the default accounting treatments based on the credit note reasons in RevRec?
What are the advanced accounting treatments based on the credit note reasons in RevRec?
What is the difference between default and advanced accounting treatment on the credit note reasons in RevRec?
Summary
Chargebee comes with a set of credit note reason codes that allow you to leverage and apply credit notes for different business scenarios. RevRec applies a set of default recognition methods for credit notes based on the reason code and further provides you the ability to adjust the treatment for certain reason codes through advanced configuration.
Solution
RevRec provides the following default accounting treatments and advanced configuration treatments based on the credit note reasons in Chargebee.
Note: RevRec provides advanced configuration so that a different recognition treatment can be applied to certain credit note reason codes. Please contact your RevRec support team to enable the configurations.
| Use Case | Reason Code | Default Treatment | Advanced Treatment |
Future Discounts
Cancel/Write-Off
Correction
Plan Change | Product Unsatisfactory
Service Unsatisfactory
Chargeback
Waiver
Subscription Pause | The credit note will be recognized prospectively over time, from the credit note creation date to the end of service date of the order/invoice that the credit note is associated with. This will offset the revenue stream associated with that order/invoice. Further, there will be no impact on already recognized revenue. | Customers can opt to recognize the full credit note amount in the period of credit note creation.
Or apply it retrospectively with the original contract start and end date, offsetting the revenue stream of the original contract. |
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Cancel/Write-Off | Order Cancellation
Subscription Cancellation
Write Off | These reason codes mark the end of the associated invoice/order.
For pro-rated refunds, RevRec will stop the revenue recognition going forward and there will be no reversal of already recognized revenue.
For a full refund, RevRec will stop the revenue recognition going forward and will reverse the cumulative recognized revenue.
Further, the reversal of revenue recognition is recognized only in the open accounting period.
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Correction | Fraudulent | The credit note is retrospectively applied - from the order's service start date to the service end date, and offsets the revenue stream of the original invoice. Further, the cumulative impact will be recognized in the open accounting period. | Customers can opt to recognize the full credit note amount in the period of credit note creation.
Or apply it prospectively from the credit note creation date till the end of the contract. |
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Plan Change | Order Change
Subscription Change | This is the case where a customer changes to a different subscription plan in the midst of an existing subscription contract. The credit note is issued on a prorated basis to refund the unused portion of the original plan. RevRec will stop the revenue recognition of the original plan, and generate a new revenue schedule for the new plan going forward. | Not applicable |
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One-Off | Other | RevRec will recognize the full credit note amount in the period of credit note creation. | Customers can opt to apply it retrospectively with the original contract start and end date, offsetting the revenue stream of the original contract.
Or apply it prospectively from the credit note creation date till the end of the contract. |
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Custom Credit Note reason: Chargebee allows customers to create additional custom credit note reasons. RevRec's default method for these custom reason codes is to recognize the full credit note amount in the period of credit note creation.
Refer to this link for more information.
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