Revenue Recognition

In Revenue Recognition we have two concept in oracle apps.
                 1. Invoicing Rule.
                 2. Accounting Rule.
Invoicing Rule:
Invoice rules will be determined the accounting period in which receivables are recognized.
There are 2 types of Invoice Rules:
                 1. Bills in advance
                 2. Bills in Arrears
Bills in advance: System will recognize the invoice amount as a advance or starting of a project. In case of Bill in advance " Unearned Revenue " will come into the picture.
If you enter an invoice with a Bill in Advance invoicing rule, Receivables creates the following journal entries.
In first Period:
                 Receivables A/c .....Dr
                                 To Unearned Revenue A/c......Cr
                                  To Tax A/c ...........................Cr
                                  To Freight A/c.......................Cr
In all periods of the rule for the portion that is recognized:
                  Unearned Revenue A/c ......Dr
                                  To Revenue...........Cr
Bills in Arrears: System will recognize amount at the end of the contract or project. In case of Bills in Arrears " Unbilled Receivable" will come into the picture. If you enter an invoice with a Bill in Arrears invoicing rule, Receivables creates the following journal entry:
In first Period, Second period till the last period the following entry will be generated.
              Unbilled Receivable A/c.......DR
                                 To Revenue ..............CR
At the completion of Project and at the last Period the following entry will be generated by system.
               Receivables A/c..............DR
                              To Unbilled Receivables A/c.............CR
                              To Tax.........................................CR
                              To Freight...................................CR
Accounting Rules:
Accounting Rules will determined the Accounting Period in which Revenues are recognized.
There are 2 types of accounting rules:
                        1. Fixed Schedule
                        2. Variable Schedule
Fixed Schedule:
We will define duration of the project and % of Revenue of each accounting period, at the time of fixed scheduled accounting rule setup.
Step: 1 Define Fixed Schedule Accounting Rule.

Navigation: Setup --> Transactions --> Accounting Rules.

     Enter Name and Description

     Enter Type of Accounting Rule - Fixed Schedule

     Enter Number of Periods

     Divide the 100% into no of periods.    

Step: 2 Create Invoice with Fixed Schedule accounting rule with Bills in advance invoice rule. 
Navigation: Transactions --> Transactions.
          Enter Standard Invoice as usual
          Payment terms: Immediate
          Choose Invoice Rule: In Advance.          

Go to line items to enter item, quantity and price details
Go to  "Rules" tab and choose accounting Rule as "Fixed Schedule"

Now system will automatically pic the " Unearned Revenue" & Revenue A/c from auto Accounting setup. Save and complete the transaction

Step -3: Run Revenue Recognition program
Navigation: View --> Request 

Now, Run create accouting program and see the ouput in subledger accounting.

Variable Schedule:
At the time of set up the Variable Schedule Rule we will not enter duration of the project & % of Revenue for each accounting period.
We enter only first period Revenue % at the time of accounting rule set up. Duration of the project will be entered at the time of invoice entry. 
Step - 1 : Define Variable Schedule Accounting Rule

     Enter Name and Description

     Enter Type of Accounting Rule - Variable Schedule

     Enter Number of Periods

     Enter First Period Percentage.

Step – 2:
Create Invoice with Fixed Schedule accounting rule with Bills in advance invoice rule.
Navigation: Transactions --> Transactions.
          Enter Standard Invoice as usual
          Payment terms: Immediate
          Choose Invoice Rule: In Advance.  

Go to line items to enter item, quantity and price details
Go to  "Rules" tab and choose accounting Rule as "Variable"

Now system will automatically pic the " Unearned Revenue" & Revenue A/c from auto Accounting setup. Save and complete the transaction

Step -3: Run Revenue Recognition program
Navigation: View --> Request 

Note: In case of "Bill in advance" invoice Rule "Unearned Revenue A/c" will hit, at the time of accounting and Incase of "bill in arreas"  invoice rule "Unbilled Receivable A/c" will come into picture for accounting.