Revenue Recognition in Dynamics 365 Finance

With Platform Update 30 we finally got our hands on the new revenue recognition functionality in Dynamics 365 Finance. In this article I will briefly explore how we can use this functionality to recognise revenue in accordance with IFRS 15.

Basic Set Up

To start with, we need to do some basic set up to get the system working. You can find more details on set up here. However, I would like to pick up on a couple of set up topics in the following.

Revenue Schedules

Obviously, if you want to invoice an order you are still able to do this without invoking the revenue recognition functionality.

To invoke revenue recognition, you need to apply a revenue schedule to the sales order line.

Let’s first have a look at how to define a revenue schedule. You find the revenue schedules set up under Revenue recognition / Setup / Revenue schedules.

As you can see from the above example, my “Subscription” schedule has 12 monthly occurrences i.e. this is a yearly subscription where the customer is invoiced up-front and revenue is subsequently recognised in monthly arrears on the first day of each month.

If you click on the Revenue schedule details menu point in the ribbon, you can see that the system has automatically distributed 100% recognition across the 12 months:

You can manually override the distribution, if required.

Deferred Accounts

As you can see from the below screenshot, five new posting types have been added to the inventory posting set up.

These accounts are used to defer revenue, COGS and tax when posting and reversing deferred revenue.

Released Product

Lastly, on the released product (“M0013 Microphone”), I have set it up to use the “Subscriptions” revenue schedule on the Revenue Recognition fast tab. This set up will be used as a default when creating a new sales order line.

Order Invoicing

Now, when I create a new sales order line using the above product, the revenue schedule is automatically set to “Subs” as shown below.

As the below invoice shows, there is no indication to the customer that Contoso will recognise revenue using a monthly schedule.

If we take a look at the financial voucher for the invoice, we can see that the postings for revenue and COGS are now made to the deferred accounts using the new posting types.

Recognising Revenue

So far, the generated revenue has been placed on deferred accounts. To recognise revenue we need to process the revenue schedule. To do this, we go to the new revenue recognition workspace found under Revenue recognition / Workspaces / Revenue management (or for a more detailed view, use Revenue recognition / Periodic tasks / Revenue recognition schedule instead).

In this screen we can see all unprocessed revenue schedule entries and use the filters at the top to make a more detailed selection. In my example, I have filtered specifically on the sales order created above.

Revenue is recognised through a revenue recognition journal. To generate a journal, I will need to click on Create journal in the ribbon. In the pop-up dialogue, I must select the date on which to process the data and the to-date for selection. In my case, I would like to process deferred revenue until the end of 2019.

The following screenshot shows the journal that has been generated.

Since I used a specific date (31/12/2019) in the dialogue, all revenue is recognised on this date. If I had opted to use the revenue schedule date in the dialogue instead, the revenue would have been recognised with monthly intervals.

All I need to do now, to recognise revenue for this order, is to post the journal.