Revenue Recognition Dashboard Overview

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With MRR Churn’s built in revenue recognition engine, calculation and tracking of deferred revenue and related GL accounts can be done at the most extreme level of granularity: down to the invoice line item level. Even if the same exact product is billed multiple times on the same invoice covering different recognition periods, each line item will be tracked and recognized separately. This also means every GL recognition and FX account will also be tracked at the invoice line item level.

However, this does not mean the GL recognition entries would be done at this level too, which would be far too onerous. Instead, GL journal entries automatically aggregate the granular detail all the way up to the legal entity and BU levels for the current or selected month, with separate optional aggregations by product segment or customer segment, if GL posting accounts can differ by these dimensions too. The GL journal entry accounts in MRR Churn include the following:

  • MRR: the true Monthly Recurring Rev. based precisely on the start and end dates of recognition, regardless of when billed, and excluding any FX errors embedded in the ERP system’s recognition numbers;
  • MRR per the GL: technically the same GL account as MRR, but it represents the MRR after excluding Unbilled MRR (due to late invoicing after month end close), while including any FX errors embedded in the ERP-calculated recognition numbers;
  • DRR: the increase in Deferred Rev. after billing, but excluding the Future AR reduction and any FX errors embedded in the ERP system’s Deferred Rev. numbers;
  • DRR per the GL: technically the same GL account as DRR, but it represents the DRR after excluding the Future AR reduction to comply with GAAP/IFRS, while including any FX errors embedded in the ERP-calculated Deferred Rev. numbers;
  • Unbilled AR: the cumulative MRR billed late, after the recognition start month;
  • Future AR: the cumulative MRR billed early, before the recognition start month;
  • Unbilled MRR: the decrease in a prior period’s GL revenue (vs. MRR) related to an increase in Unbilled AR;
  • MRR: the increase in the current period’s GL revenue related to prior Unbilled AR now billed;
  • FX Error in DRR per the GL: FX errors embedded in ERP systems that track DRR only in LC, not OC (i.e., when the OC billed <> the LC of the legal entity);
  • FX Error in MRR per the GL: FX errors embedded in ERP systems that track MRR only in LC, not OC (i.e., when the OC billed <> the LC of the legal entity).

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MRR & DRR Rollforwards and Reconciliations

For every legal entity, verify that the MRR, DRR, MRR per GL and DRR per GL amounts properly roll forward from the prior month and prior year period as a prerequisite to booking the revenue recognition entries. Also verify that the MRR and DRR amounts properly reconcile to the MRR per GL and DRR per GL amounts, respectively, before booking any revenue recognition entries. Any legal entities with unreconciled differences are clearly flagged, and the details of the rollforwards and reconciliations for these can be easily expanded for a more detailed review.

Revenue Recognition JEs – Current Month & Corrections

Recognize the MRR by legal entity and BU in the displayed local currency of each legal entity. Also recognize any MRR corrections to prior months based on an automated calculation of the trailing 12 months MRR as of the prior month end, less the prior month’s snapshot of that trailing 12 months MRR as of that same prior month end. If no retroactive MRR changes occurred since last month’s snapshot and the related MRR journal entries, then there will be no MRR corrections to post.

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Future AR & Unbilled AR JEs

Recognize the changes in Future AR and Unbilled AR by legal entity and BU in the displayed local currency of each legal entity. Since these are posted as reversing entries and only impact deferred revenue (DRR), they are self-correcting in the current month. So correcting adjustments to Future AR and Unbilled AR from retroactive changes are not required.

DRR Revaluation JEs – Current Month & Corrections

Recognize the DRR FX revaluation by legal entity and BU in the displayed local currency (LC) of each legal entity to account for the change in ending FX rates from month to month. Also recognize any DRR FX revaluation corrections to the prior month based on the most recent (updated) calculation of the DRR FX revaluation as of the prior month end, less the prior month’s snapshot of that DRR FX revaluation as of that same prior month end. If no change to the DRR FX revaluation occurred since last month’s snapshot and the related DRR journal entries, then there will be no DRR revaluation corrections to post. Note that a DRR revaluation is required for reporting accuracy when translating any originating/billing currency (OC) amounts that are not denominated in the LC of the legal entity.

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DRR and MRR FX Errors in LC (Optional JEs)

When ERP or other billing systems are relied upon for revenue recognition, they often create material reporting currency errors in both DRR and MRR when the originating/billing currency (OC) is not the same as the local currency (LC) of the legal entity. That’s because the future LC/OC FX rates are not known at the time of invoice posting, yet the revenue billed is stored and recognized into revenue only at the fixed LC/OC FX rate at the time of invoice posting. If such a LC revenue recognition engine is used, FX errors in both DRR and MRR can still be automatically quantified and reversed to FX gain/loss by legal entity and BU in the displayed LC of each legal entity using this simple report. By contrast, if our more accurate revenue recognition engine is used, then these FX errors buried in LC will not exist, and adjusting for them will never be required.

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