Skip to main content

Use case of unbilled usage revenue

Zuora

Use case of unbilled usage revenue

In the use case of unbilled usage revenue, the Consumption Revenue functionality provides the ability to accrue usage revenue when the invoice term is in arrears. This article provides an example to understand this particular use case.

Step-by-step walkthrough

This section walks you through a series of events and system behaviors upon data collection. 

  1. On January 1, 2022, a customer contract is executed and effective immediately based on the usage pricing model, which is a basic pay-as-you-go model with billing in arrears. In Zuora Revenue, a revenue contract is created with a sales order line based on the performance obligation (POB) template called Consumption - Usage Event (Non-Committed). No accounting entry is created.
  2. On January 15, 2022, $100 of usage is incurred and recorded. In Zuora Revenue, revenue is recognized to the Unbilled Revenue account because the invoice has not been issued. The sales order amount is greater than the invoice amount. Accounting entries are created as follows:
    Account Credit Debit
    Unbilled Revenue   $100
    Revenue $100  
  3. On January 31, 2022, an invoice for $100 is issued. In Zuora Revenue, the invoice is collected and processed. Unbilled revenue is cleared with the following accounting entries created:

    Account Credit Debit
    AR   $100
    Unbilled Revenue $100  
  4. On February 15, 2022, $20 of usage is incurred and recorded. In Zuora Revenue, revenue is recognized as Unbilled Revenue because the invoice has not been issued. The sales order amount is still greater than the invoice amount. Accounting entries are created as follows:

    Account Credit Debit
    Unbilled Revenue   $20
    Revenue $20  
  5. On February 16, 2022, a negative $50 of usage is incurred and recorded. In Zuora Revenue, revenue is adjusted from Unbilled Revenue first for the related negative usage recorded. Now, the sales order amount is less than the invoice amount. The system reconciles the difference between invoiced and yet-to-be-invoiced amounts to Contra AR. The expectation is for the Contra AR account to be cleared when further usage is incurred or through the collection of the corresponding credit memo. Accounting entries are created as follows:

    Account Credit Debit
    Revenue   $50
    Unbilled Revenue $50  
    Unbilled Revenue   $30
    Contra AR $30  
  6. On February 28, 2022, there is no event of invoice or credit memo. Nothing happens in the system.

  7. On March 15, 2022, $20 of usage is incurred and recorded. Revenue is first recognized to Unbilled Revenue because the invoice has not been issued. The sales order amount is less than the invoice amount. The system reconciles the difference between the invoiced and yet-to-be-invoiced amounts to existing Contra AR. Contra AR is adjusted to reconcile an updated difference. The expectation is for the Contra AR account to be cleared when further usage is incurred or through the collection of the corresponding credit memo. Accounting entries are created as follows:

    Account Credit Debit
    Unbilled Revenue   $20
    Revenue $20  
    Contra AR   $30
    Unbilled Revenue $30  
    Unbilled Revenue   $10
    Contra AR $10  
  8. On March 31, 2022, a credit memo is created for $10. In Zuora Revenue, the credit memo is collected and processed, which offsets the remaining AR. Till now, the sales order amount equals the invoice amount in this contract.

    Account Credit Debit
    Contra AR   $10
    AR $10  

Use case summary

The following table provides a summary of the same use case for your quick reference.

Date Event Zuora Revenue Journal entries
Jan/01/2022 A customer contract is executed and effective immediately based on the usage pricing model, which is a basic pay-as-you-go model with billing in arrears. A revenue contract is created with a sales order line based on the performance obligation (POB) template called Consumption - Usage Event (Non-Committed). N/A
Jan/15/2022 $100 of Usage is incurred and recorded.

Revenue is recognized to the Unbilled Revenue account because the invoice has not been issued.

The sales order amount is greater than the invoice amount.

Dr. Unbilled Revenue $100
Cr. Revenue $100
Jan/31/2022 An invoice for $100 is issued and processed by Zuora Revenue. The invoice is collected and processed. Unbilled revenue is cleared. Dr. AR $100
Cr. Unbilled Revenue $100
Feb/15/2022 $20 of usage is incurred and recorded.

Revenue is recognized as Unbilled Revenue because the invoice has not been issued.

The sales order amount is greater than the invoice amount.

Dr. Unbilled Revenue $20
Cr. Revenue $20
Feb/16/2022 A negative $50 of usage is incurred and recorded.

Revenue is adjusted from Unbilled Revenue first for the related negative usage recorded. The sales order amount now is less than the invoice amount.

The system reconciles the difference between invoiced and yet-to-be-invoiced amounts to Contra AR. The expectation is for the Contra AR account to be cleared when further usage is incurred or through the collection of the corresponding credit memo.

Dr. Revenue $50
Cr. Unbilled Revenue $50

Dr. Unbilled Revenue $30
Cr. Contra AR $30

Feb/28/2022 There is no invoice or credit memo event. N/A N/A
Mar/15/2022 $20 of usage is incurred and recorded.

Revenue is first recognized to Unbilled Revenue because the invoice has not been issued. The sales order amount is less than the invoice amount. 

The system reconciles the difference between the invoiced and yet-to-be-invoiced amounts to existing Contra AR. Contra AR is adjusted to reconcile an updated difference. The expectation is for the Contra AR account to be cleared when further usage is incurred or through the collection of the corresponding credit memo.

Dr. Unbilled Revenue $20
Cr. Revenue $20


Dr. Contra AR $30
Cr. Unbilled Revenue $30

Dr. Unbilled Revenue $10
Cr. Contra AR $10
Mar/31/2022 A credit memo is created for $10 and processed by Zuora Revenue.

The credit memo is collected and processed, which offsets the remaining AR. 

The sales order amount now equals the invoice amount in this contract.

Dr. Contra AR $10
Cr. AR $10