Revenue Flow Map
Complete guide to revenue recognition timing, deferred revenue, and compliance with ASC 606 in NetSuite.
Revenue Recognition Overview
REVENUE RECOGNITION CONCEPT
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WHEN TO RECOGNIZE REVENUE?
Point in Time Over Time
───────────── ─────────
┌─────────────────────┐ ┌─────────────────────┐
│ │ │ │
│ Product Sale │ │ Subscription │
│ ───────────── │ │ ───────────── │
│ │ │ │
│ Control transfers │ │ Service delivered │
│ at delivery │ │ over contract term │
│ │ │ │
│ Revenue: 100% │ │ Revenue: Monthly │
│ at shipment │ │ recognition │
│ │ │ │
└─────────────────────┘ └─────────────────────┘
┌─────────────────────┐ ┌─────────────────────┐
│ │ │ │
│ License (Perpetual)│ │ License (Term) │
│ ───────────────── │ │ ───────────── │
│ │ │ │
│ Right to use │ │ Right to access │
│ granted at sale │ │ over term │
│ │ │ │
│ Revenue: 100% │ │ Revenue: Ratably │
│ at delivery │ │ over term │
│ │ │ │
└─────────────────────┘ └─────────────────────┘
Master Revenue Flow Diagram
NETSUITE REVENUE FLOW
═══════════════════════════════════════════════════════════════════════════════════════════════════
INVOICE CREATED
│
▼
┌─────────────────────────────────────────┐
│ │
│ REVENUE ARRANGEMENT │
│ (Revenue Element Created) │
│ │
└────────────────────┬────────────────────┘
│
┌────────────────────┼────────────────────┐
│ │ │
▼ ▼ ▼
┌───────────────────┐ ┌───────────────────┐ ┌───────────────────┐
│ POINT IN TIME │ │ OVER TIME │ │ DEFERRED │
│ │ │ (Ratable) │ │ (Event-Based) │
└─────────┬─────────┘ └─────────┬─────────┘ └─────────┬─────────┘
│ │ │
▼ ▼ ▼
┌───────────────────┐ ┌───────────────────┐ ┌───────────────────┐
│ │ │ Month 1: 1/12 │ │ │
│ 100% Revenue │ │ Month 2: 2/12 │ │ Awaiting Event │
│ Recognized │ │ Month 3: 3/12 │ │ (Milestone, │
│ Immediately │ │ ... │ │ Acceptance, │
│ │ │ Month 12: 12/12 │ │ Delivery) │
│ │ │ │ │ │
└───────────────────┘ └───────────────────┘ └─────────┬─────────┘
│
▼
┌───────────────────┐
│ Event Occurs │
│ → Revenue │
│ Recognized │
└───────────────────┘
Revenue Recognition Methods
Point in Time Recognition
POINT IN TIME REVENUE
═══════════════════════════════════════════════════════════════════════════════
Scenario: Product sale with delivery
Invoice Date: January 15, 2024
Amount: $10,000
Item: Hardware Equipment
Timeline:
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ Jan 15 Jan 20 │
│ │ │ │
│ ▼ ▼ │
│ Invoice Delivery │
│ Created Complete │
│ │ │ │
│ │ └──────▶ Revenue Recognized: $10,000 │
│ │ │
│ └──────▶ Deferred Revenue: $10,000 (until delivery) │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
GL at Invoice:
┌────────────────────────────────────┬────────────┬────────────┐
│ Account │ Debit │ Credit │
├────────────────────────────────────┼────────────┼────────────┤
│ Accounts Receivable │ $10,000.00 │ │
│ Deferred Revenue │ │ $10,000.00 │
└────────────────────────────────────┴────────────┴────────────┘
GL at Delivery (Revenue Recognition):
┌────────────────────────────────────┬────────────┬────────────┐
│ Account │ Debit │ Credit │
├────────────────────────────────────┼────────────┼────────────┤
│ Deferred Revenue │ $10,000.00 │ │
│ Sales Revenue │ │ $10,000.00 │
└────────────────────────────────────┴────────────┴────────────┘
Over Time Recognition (Ratable)
RATABLE REVENUE RECOGNITION
═══════════════════════════════════════════════════════════════════════════════
Scenario: 12-month software subscription
Invoice Date: January 1, 2024
Amount: $12,000
Term: January 1 - December 31, 2024
Recognition Schedule:
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ Month Revenue Deferred Cumulative │
│ Recognized Remaining Recognized │
│ ───────────────────────────────────────────────── │
│ Jan 1 $1,000 $11,000 $1,000 │
│ Feb 1 $1,000 $10,000 $2,000 │
│ Mar 1 $1,000 $9,000 $3,000 │
│ Apr 1 $1,000 $8,000 $4,000 │
│ May 1 $1,000 $7,000 $5,000 │
│ Jun 1 $1,000 $6,000 $6,000 │
│ Jul 1 $1,000 $5,000 $7,000 │
│ Aug 1 $1,000 $4,000 $8,000 │
│ Sep 1 $1,000 $3,000 $9,000 │
│ Oct 1 $1,000 $2,000 $10,000 │
│ Nov 1 $1,000 $1,000 $11,000 │
│ Dec 1 $1,000 $0 $12,000 │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Monthly Revenue Recognition Entry:
┌────────────────────────────────────┬────────────┬────────────┐
│ Account │ Debit │ Credit │
├────────────────────────────────────┼────────────┼────────────┤
│ Deferred Revenue │ $1,000.00 │ │
│ Subscription Revenue │ │ $1,000.00 │
└────────────────────────────────────┴────────────┴────────────┘
Percentage of Completion
PERCENTAGE OF COMPLETION REVENUE
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Scenario: Fixed-price project contract
Contract Amount: $100,000
Estimated Costs: $70,000
Project Duration: 6 months
Progress-Based Recognition:
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ Month Costs % Revenue Cumulative Deferred │
│ Incurred Complete Recognized Revenue Balance │
│ ──────────────────────────────────────────────────────────────── │
│ Month 1 $10,000 14.3% $14,300 $14,300 $85,700 │
│ Month 2 $15,000 35.7% $21,400 $35,700 $64,300 │
│ Month 3 $12,000 52.8% $17,100 $52,800 $47,200 │
│ Month 4 $18,000 78.5% $25,700 $78,500 $21,500 │
│ Month 5 $10,000 92.8% $14,300 $92,800 $7,200 │
│ Month 6 $5,000 100% $7,200 $100,000 $0 │
│ ──────────────────────────────────────────────────────────────── │
│ TOTAL $70,000 100% $100,000 │
│ │
│ Formula: Revenue = (Costs Incurred / Total Est. Costs) × Contract Value │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Multiple Element Arrangements
Bundled Products/Services
MULTIPLE ELEMENT ARRANGEMENT (ASC 606)
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Scenario: Software bundle with implementation and support
Contract Total: $50,000
┌─────────────────────────────────────────────────────────────────────────────┐
│ PERFORMANCE OBLIGATIONS │
│ ──────────────────────── │
│ │
│ Element Standalone Allocated Recognition │
│ Selling Revenue Method │
│ Price │
│ ──────────────────────────────────────────────────────────────── │
│ Software License $30,000 $27,273 Point in time │
│ Implementation $15,000 $13,636 Over time (project) │
│ 1-Year Support $10,000 $9,091 Over time (12 months) │
│ ──────────────────────────────────────────────────────────────── │
│ TOTAL SSP $55,000 $50,000 │
│ │
│ Allocation: (Element SSP / Total SSP) × Contract Price │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Revenue Schedule:
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ Month License Implementation Support Total │
│ ──────────────────────────────────────────────────────── │
│ Month 1 $27,273 $4,545 $758 $32,576 │
│ Month 2 - $4,545 $758 $5,303 │
│ Month 3 - $4,546 $758 $5,304 │
│ Month 4 - - $758 $758 │
│ ... - - $758 $758 │
│ Month 12 - - $757 $757 │
│ ──────────────────────────────────────────────────────── │
│ TOTAL $27,273 $13,636 $9,091 $50,000 │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Deferred Revenue
Deferred Revenue Lifecycle
DEFERRED REVENUE LIFECYCLE
═══════════════════════════════════════════════════════════════════════════════
INVOICE CREATED
│
▼
┌───────────────────────┐
│ DEFERRED REVENUE │
│ (Liability) │
│ │
│ Balance: $12,000 │
└───────────┬───────────┘
│
┌────────────────┼────────────────┐
│ │ │
▼ ▼ ▼
┌─────────┐ ┌─────────┐ ┌─────────┐
│ Period 1│ │ Period 2│ │ Period N│
│ $1,000 │ │ $1,000 │ ... │ $1,000 │
└────┬────┘ └────┬────┘ └────┬────┘
│ │ │
▼ ▼ ▼
┌─────────┐ ┌─────────┐ ┌─────────┐
│ Revenue │ │ Revenue │ │ Revenue │
│ Account │ │ Account │ │ Account │
└─────────┘ └─────────┘ └─────────┘
Balance Sheet View:
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ DEFERRED REVENUE │
│ ───────────────── │
│ │
│ Current Portion (due within 12 months): $8,000 │
│ Long-term Portion (beyond 12 months): $4,000 │
│ │
│ Example: 2-year contract billed upfront │
│ Year 1 (current): $8,000 to be recognized │
│ Year 2 (long-term): $4,000 to be recognized │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Common Deferred Revenue Scenarios
| Scenario | Initial Entry | Recognition Trigger |
|---|---|---|
| Annual subscription | Invoice → Deferred | Monthly over term |
| Prepaid maintenance | Invoice → Deferred | Monthly over term |
| Gift card sale | Cash → Deferred | Redemption |
| Customer deposit | Cash → Deferred | Delivery/Service |
| Milestone project | Invoice → Deferred | Milestone completion |
| Magazine subscription | Invoice → Deferred | Issue delivery |
Revenue Recognition Rules
Item-Level Configuration
ITEM REVENUE RECOGNITION SETUP
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Item Record Configuration:
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ Item: Annual Software Subscription │
│ ────────────────────────────────── │
│ │
│ Revenue Recognition: │
│ ├── Revenue Recognition Rule: Ratable Over Term │
│ ├── Revenue Recognition Template: [Link to template] │
│ ├── Deferred Revenue Account: 2400 Deferred Revenue │
│ ├── Revenue Account: 4100 Subscription Revenue │
│ └── Recognition Start: Contract Start Date │
│ │
│ Revenue Recognition Template Settings: │
│ ├── Recognition Period: Contract Term (from item) │
│ ├── Period Frequency: Monthly │
│ ├── Recognition Method: Straight Line │
│ └── Calculation: Days in Period / Total Days │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Recognition Methods
| Method | Calculation | Use Case |
|---|---|---|
| Straight Line | Equal amounts per period | Subscriptions |
| Exact Days | Daily proration | Partial periods |
| Percentage | % of completion | Projects |
| Milestone | Event-based | Deliverables |
| Manual | User-specified | Custom scenarios |
Advanced Revenue Management (ARM)
Revenue Arrangement
REVENUE ARRANGEMENT STRUCTURE
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Source Transaction: Invoice #INV-001
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ REVENUE ARRANGEMENT #RA-001 │
│ ──────────────────────────── │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Revenue Element 1: Software License │ │
│ │ ───────────────────────────────────── │ │
│ │ Standalone Selling Price: $30,000 │ │
│ │ Allocated Amount: $27,273 │ │
│ │ Recognition: Point in Time │ │
│ │ Status: Recognized ($27,273) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Revenue Element 2: Implementation Services │ │
│ │ ───────────────────────────────────────── │ │
│ │ Standalone Selling Price: $15,000 │ │
│ │ Allocated Amount: $13,636 │ │
│ │ Recognition: Over Time (3 months) │ │
│ │ Status: Partially Recognized ($9,091 of $13,636) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Revenue Element 3: Annual Support │ │
│ │ ───────────────────────────────── │ │
│ │ Standalone Selling Price: $10,000 │ │
│ │ Allocated Amount: $9,091 │ │
│ │ Recognition: Over Time (12 months) │ │
│ │ Status: Partially Recognized ($2,273 of $9,091) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Fair Value Allocation
FAIR VALUE ALLOCATION (SSP)
═══════════════════════════════════════════════════════════════════════════════
Step 1: Identify Standalone Selling Prices (SSP)
┌─────────────────────────────────────────────────────────────────────────────┐
│ Element SSP Source SSP Amount │
│ ────────────────────────────────────────────────────────── │
│ Software License Price List $30,000 │
│ Implementation Time & Materials $15,000 │
│ Support Renewal Rate $10,000 │
│ ────────────────────────────────────────────────────────── │
│ Total SSP $55,000 │
└─────────────────────────────────────────────────────────────────────────────┘
Step 2: Allocate Contract Price to Elements
┌─────────────────────────────────────────────────────────────────────────────┐
│ Contract Price: $50,000 │
│ │
│ Element SSP SSP % Allocation │
│ ────────────────────────────────────────────────────────── │
│ Software License $30,000 54.55% $27,273 │
│ Implementation $15,000 27.27% $13,636 │
│ Support $10,000 18.18% $9,091 │
│ ────────────────────────────────────────────────────────── │
│ TOTAL $55,000 100% $50,000 │
│ │
│ Note: Discount allocated proportionally across all elements │
└─────────────────────────────────────────────────────────────────────────────┘
Revenue Reports
Key Reports
| Report | Purpose | Shows |
|---|---|---|
| Revenue Recognition Schedule | Planned recognition | Future rev rec by period |
| Deferred Revenue by Customer | Liability detail | Deferred balances |
| Revenue Arrangement Summary | ARM overview | Elements and status |
| Revenue vs Billing | Comparison | Billed vs recognized |
| Recognized Revenue | Actual recognition | What's been recognized |
Revenue Query
-- Invoices with revenue details
SELECT
t.tranid,
t.trandate,
c.entityid AS customer,
i.itemid AS item,
tl.quantity,
tl.rate,
tl.netamount
FROM
transaction t
JOIN
transactionline tl ON t.id = tl.transaction
LEFT JOIN
customer c ON t.entity = c.id
LEFT JOIN
item i ON tl.item = i.id
WHERE
t.type = 'CustInvc'
AND tl.mainline = 'F'
AND tl.item IS NOT NULL
AND t.trandate >= '2024-01-01'
ORDER BY
t.trandate DESC
-- Account balances for deferred revenue accounts
SELECT
a.acctnumber,
a.accountsearchdisplayname AS account_name,
SUM(tal.amount) AS balance
FROM
transactionaccountingline tal
JOIN
account a ON tal.account = a.id
WHERE
a.accttype = 'DeferRevenue'
GROUP BY
a.acctnumber,
a.accountsearchdisplayname
HAVING
SUM(tal.amount) <> 0
Best Practices
Setup
| Practice | Benefit |
|---|---|
| Define SSP methodology | Consistent allocation |
| Create rev rec templates | Reusable configurations |
| Map items to templates | Automated recognition |
| Separate deferred accounts | Clear visibility |
Operations
| Practice | Benefit |
|---|---|
| Run rev rec monthly | Timely recognition |
| Review arrangements | Catch issues early |
| Reconcile deferred balance | Accurate liability |
| Document judgments | Audit support |
Compliance
| Practice | Benefit |
|---|---|
| Follow ASC 606 framework | GAAP compliance |
| Maintain SSP evidence | Defensible allocation |
| Track modifications | Proper accounting |
| Periodic policy review | Stay current |
Next Steps
- GL Flow Map - See revenue GL entries
- Intercompany Flow - IC revenue considerations
- Financial Flow - Journal entries