How are the revenue and commission recognized in RevRec Journal entries?

Modified on: Fri, 9 Dec, 2022 at 6:32 PM


What are Journal Entries in RevRec?

How is Deferred Revenue tracked on the Journal Entry report?

Understanding Commissions Entries in RevRec
Understanding Revenue Entries in RevRec

How are the revenue and commission recognized in RevRec Journal entries?


Creating Journal Entries
RevRec supports both the deferral and recognition of revenue and the capitalization and amortization of costs of obtaining a contract (sales commissions).

RevRec uses your revenue-related accounts which are mapped to your GL system making it easy to post these entries (either manually or automatically).

For example, Widget Inc sells a subscription to their 'widget builder' as an annual subscription X for $12,000 and pays their star salesman Revy a commission of $600 that is paid upfront. The commission is determined to be capitalizable under Widget Inc.'s accounting policy. The invoicing system is set up to automatically establish an accounts receivable (A/R) balance and recognize revenue for the same amount.

Understanding Revenue Entries
Day 1 Revenue Entry
In this case, the entire earned amount was recognized but needs to be deferred. RevRec will automatically produce the following entry

Revenue Deferral

Day 2 Revenue Entry
Subsequent to establishing the deferred revenue balance, RevRec will determine the amount of revenue to recognize on a monthly basis and perform the following entries:

Revenue Recognition

Understanding Commissions Entries
Day 1 Commissions Entry
Since the entire commission amount was fully earned and will be capitalized, we first need to establish the deferred cost for such an amount.

Commissions Expense Deferal

Day 2 Commissions Entry
Subsequently, amortization of the commission is taken over the estimated customer life as documented in RevRec (in this case 2 yrs) and is expensed every month for the next 24 months as follows:

Commissions Amortization

Note that your day one entry might vary depending on how the invoicing or commission systems produce entries (for example your invoicing system might already be establishing a deferral in which case you would want to contra the amount or not book the Day 1 entry produced by RevRec).  For example, if your invoicing system already establishes the deferred revenue balance, you can turn off RevRec's Deferred Revenue journal entries by not setting up the GL account and mapping for the "Deferred Revenue" account type.

Related Articles

Journal Entries in RevRec 

What is Journal Account Mapping in RevRec? 

How to find the Unearned Revenue Rollforward Report in RevRec? 

Example: Creating a Chart of Accounts in RevRec

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