Revenue recognition provides a meaningful and consistent measurement of business performance. In recurring revenue, it is important to match the revenue and the costs incurred to generate that revenue in the same period, regardless of when the seller’s invoice is issued or the customer’s payment is received.
As such, Aria SmartRec provides a representation of account activity—primarily financial transaction activity—so that accounting systems have visibility into the amount of revenue that should be regarded as deferrable, and the amount of revenue that should be regarded as earned in a given period.
SmartRec and the General Ledger
There are three general ledger account codes that are used in Aria. The general ledger (GL) codes Accounts Receivable and Earned Revenue must be provided for services to be represented in Aria SmartRec. The GL code Deferred Revenue must only be provided if you wish for deferrable services to be represented in Aria SmartRec.
GL account codes may be reused across multiple services, but only services with GL account codes present are represented in Aria SmartRec.
When is Revenue Considered Earned or Recognized?
Revenue is considered earned when:
- Clear and objective evidence exists of a buyer/seller arrangement.
- A delivery has occurred or a service has been rendered to the customer.
- A price for a product delivered or service rendered is fixed or determinable.
- A reasonable assurance exists that payment will be collected by the seller.
Note: Cash payments and cash credits are not considered recognized revenue.
The following events must take place before revenue is recognized in Aria:
- General Ledger accounting codes must be configured in Aria.
- SmartRec must be enabled in the Aria database. Please contact your Aria Support representative for assistance.
- General Ledger accounting codes must be associated with services.
- Services are bundled as part of a plan.
- A plan is purchased by an account.
- A batch process runs and generates GL tables, which include revenue recognition data.