LT/ST reclassification processing logic

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LT/ST reclassification processing logic

In the current open period, after the CA/CL position and balance of each revenue contract is determined by the netting process, the LT/ST reclassification process will calculate the long-term balance in the following way:

  1. Determine the long-term periods based on the LT_ACCT_MONTHS profile setting. The long-term periods start after the specified number of months and last until the end date. 

  2. Review the billing waterfall to determine the billing amount that is scheduled for the long-term periods.

  3. Review the adjustment waterfall to determine the adjustment amount that is scheduled for the long-term periods. The adjustment amount is considered as the billed amount.

For example, the duration of a transaction line is 36 months, which starts from January 1, 2019 to 31 December, 2021. The current open period is March 2019. The LT_ACCT_MONTHS profile is set to 12. The Billed Amount is $3600 and the Carve Amount is $360.

The long-term periods start from 12 months after the current open period (April 2020) and will end in December 2021. The long-term periods contain 21 months. The long-term contractual amount can be calculated based on the following formula:

LT Contractual Amount = LT Month * Monthly Billing = 21 * 100 = $2100

Similarly, the adjustment amount is considered as the billed amount and calculated.

LT Adjustment Amount = LT Month * Adjustment = 21 * 10 = $210

Scenario 1: Netting at transaction level and RC is in CL position

In this scenario, the NETTING_PROCESS_LEVEL profile is set to Transaction.

When the RC is in CL position, the LT balance for the Contract Liability and Adjustment Liability will be booked separately. In the example provided in the Processing logic section, if $360 is the carve-out amount, the LT Contract Liability balance is $2,100 and the LT Adjustment Liability balance is $210.

If both the LT Contract Liability balance and the LT Adjustment Liability are positive for the transaction line, the LT/ST schedules are booked as follows:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term) 2,100  
  Long-term Contract Liability   2,100
  Adjustment Liability (short-term) 210  
  Long-term Adjustment Liability   210

If both the LT Contract Liability balance and the LT Adjustment Liability are negative for the transaction line, the LT/ST schedules are booked as follows:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term)   2,100
  Long-term Contract Liability 2,100  
  Adjustment Liability (short-term)   210
  Long-term Adjustment Liability 210  

Where:

  • The ST Contract Liability account is derived for the transaction line based on the accounting setup for the Contract Liability accounting type. 

  • The LT Contract Liability account is derived for the transaction line based on the accounting setup for the LT Contract Liability accounting type. If no such account is available for the line, RevPro derives the LT Contract Liability natural account based on the revenue book setup.

  • The ST Adjustment Liability account is derived for the transaction line based on the accounting setup for the Adjustment Liability accounting type.

  • The LT Adjustment Liability account is derived for the transaction line based on the accounting setup for the LT Adjustment Liability accounting setup. If no such account is available for the line, RevPro derives the LT Adjustment Liability natural account based on the revenue book setup.

Scenario 2: Netting at transaction line level and RC is in CA position

In this scenario, the NETTING_PROCESS_LEVEL profile is set to Transaction and the LT/ST_PROCESS_FOR_RC_CA_STATUS profile is toggled to Yes. This means the netting process is performed at the transaction level and LT/ST reclassification is enabled for the revenue contract in CA position. 

When the RC is in CA position, RevPro calculates the LT balance on the transaction line in the revenue contract by combining the LT contractual balance and LT adjustment balance. The LT balance is booked between the ST Contract Asset and LT Contract Asset. In the example provided in the Processing logic section, if $360 is the carve-in amount, then the LT balance is the sum of the LT Contract Asset balance ($2,100) and the LT Adjustment Asset balance ($210), which is $2310.

If the net LT balance for the transaction line is negative, the following LT/ST schedules are booked:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term)   2,310
  Long-term Contract Liability 2,310  

If the LT balance for the transaction line is positive, the following LT/ST schedules are booked:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term) 2,310  
  Long-term Contract Liability   2,310

Where:

  • The ST Contract Asset account is derived for the transaction line based on the accounting setup for the Contract Asset accounting type. If no such account is available for the line, RevPro derives the ST Contract Asset natural account based on the revenue book setup.

  • The LT Contract Asset account is derived for the transaction line based on the accounting setup for the Contract Asset accounting type. If no such account is available for the line, RevPro derives the LT Contract Asset natural account based on the revenue book setup.

Scenario 3: Netting at application level and RC is in CL position

In this scenario, the NETTING_PROCESS_LEVEL profile is set to Application.

When the RC is in CL position, the LT balance for the Contract Liability and Adjustment Liability will be booked separately. In the example provided in the Processing logic section, if $360 is the carve-out amount, then the LT Contract Liability balance is $2,100 and the LT Adjustment Liability balance is $210.

If both the LT Contract Liability balance and the LT Adjustment Liability are positive for the transaction line, the LT/ST schedules are booked as follows:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term) 2,100  
  Long-term Contract Liability   2,100
  Adjustment Liability (short-term) 210  
  Long-term Adjustment Liability   210

If both the LT Contract Liability balance and the LT Adjustment Liability are negative for the transaction line, the accounting entries are booked as follows:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term)   2,100
  Long-term Contract Liability 2,100  
  Adjustment Liability (short-term)   210
  Long-term Adjustment Liability 210  

Where:

  • The ST Contract Liability account is derived for the transaction line based on the accounting setup for the Contract Liability accounting type. 

  • The LT Contract Liability account is derived for the transaction line based on the accounting setup for the LT Contract Liability accounting type. If no such account is available for the line, RevPro derives the LT Contract Liability natural account based on the revenue book setup.

  • The ST Adjustment Liability account is derived for the transaction line based on the accounting setup for the Adjustment Liability accounting type.

  • The LT Adjustment Liability account is derived for the transaction line based on the accounting setup for the LT Adjustment Liability accounting setup. If no such account is available for the line, RevPro derives the LT Adjustment Liability natural account based on the revenue book setup.

Scenario 4: Netting at application level and RC is in CA position

In this scenario, the NETTING_PROCESS_LEVEL profile is set to Application and the LT/ST_PROCESS_FOR_RC_CA_STATUS profile is toggled to Yes. This means the netting process is performed at the application level and LT/ST reclassification is enabled for the revenue contract in CA position. 

When the RC is in CA position, RevPro calculates the LT balance on the transaction line in the revenue contract by combining the LT contractual balance and LT adjustment balance. The LT balance is booked between the ST Contract Asset and LT Contract Asset. In the example provided in the Processing logic section, if $360 is the carve-in amount, then the LT balance is the sum of the LT Contract Asset balance ($2,100) and the LT Adjustment Asset balance ($210), which is $2310.

If the net LT balance for the transaction line is negative, the accounting entries are booked as follows during the LT/ST reclassification process:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term)   2,310
  Long-term Contract Liability 2,310  

If the LT balance for the transaction line is positive, the following LT/ST schedules are booked:

Period Accounting type Dr Cr
MAR-19 Contract Liability (short-term) 2,310  
  Long-term Contract Liability   2,310

Where, both the ST Contract Asset account and the LT Contract Asset account are derived based on the revenue book setup.

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