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RORD and CM-RO accounting entries

Zuora

RORD and CM-RO accounting entries

Beginning from version 37.001.00.00, if the RORD line is collected after the invoice line and the dates of the RORD line overlap with the dates of the invoice line, a contra entry will be created for the minimum value of the invoice amount and the return order amount. Then, the contra revenue reversal will happen when the CM-RO line is collected for the RORD amount later. 

If the ratable method of the RORD parent line is one of the following types, the release of the RORD line will follow the same ratable method of its parent line based on the performance obligation that is satisfied for each open period. If there is no revenue scheduled for the open period, the RORD line will not be processed.

  • Contract Ratable
  • Ratable
  • Immediate using start date
  • Immediate using current open period

Scenario 1 - RORD collected after invoicing with overlap

In this scenario, the RORD line is collected after the invoice line and there is an overlap between the RORD dates and the invoice dates. Then, the contra entry will be created for the minimum value of the RORD amount and the invoice amount.

The current open period is Jan-2020. Both the SO line and the invoice line are collected in Zuora Revenue in January 2020.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 SO 12000 12000 1/1/2020 12/31/2020 12000 0 202001
1.1 INV 12000 12000 1/1/2020 12/31/2020 12000 0 202001

The accounting entry is created as follows:

Account Type Dr Cr Period ID
Contract Liability   12000 202001

Then, in the same period, the following RORD line is collected. The dates of the RORD line overlap with the dates of the invoice line. A contra entry will be created for $6000, which is the minimum of the RORD amount and the invoice amount.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 RORD -6000 -6000 7/1/2020 12/31/2020 -6000 0 202001

After the RORD line is collected, the allocatable amount of the original SO line is decreased as follows.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized
1.1 SO 12000 6000 1/1/2020 12/31/2020 12000 0

The accounting entries are created for the RORD line as follows:

Account type Dr Cr Period ID
Contract Liability   12000 202001
Contract Liability 6000   202001
Contra Revenue   6000 202001

The contra revenue reversal happens when the CM-RO line is collected for the RORD amount later.

Scenario 2 - RORD release based on POB ratable method

In this scenario, the current open period is Jan-2020. Both the SO line and the invoice line are collected in Zuora Revenue in January 2020. The system settings are as follows:

  • The POB ratable method is Contract Ratable and the accounting method is Partially Monthly.
  • The INVOICE_CONTRACT_RATABLE profile is set to Y, which means the invoice revenue follows the contract ratable method.

The revenue has been 50% released in January 2020.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 SO 12000 12000 1/1/2020 12/31/2020 6000 6000 202001
1.1 INV 12000 12000 1/1/2020 12/31/2020 6000 6000 202001

The accounting entries will be created as follows:

Account type Dr Cr Period ID
Contract Liability   12000 202001
Contract Liability 1000   202001
Revenue   1000 202001
Contract Liability 1000   202002
Revenue   1000 202002
Contract Liability 1000   202003
Revenue   1000 202003
Contract Liability 1000   202004
Revenue   1000 202004
Contract Liability 1000   202005
Revenue   1000 202005
Contract Liability 1000   202006
Revenue   1000 202006

In the Jul-2020 period, the RORD line is collected. The dates of the RORD line overlap with the dates of the invoice line. The RORD revenue will not be released because there is no revenue schedule in the RORD periods.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 RORD -6000 -6000 7/1/2020 12/31/2020 -6000 0 202007

A contra entry is created for $6000 the Jul-2020 period and the accounting entries are as follows:

Account type Dr Cr Period ID
Contract Liability 6000   202007
Contra Revenue   6000 202007

When the remaining 50% of the revenue is released in Jul-2020 period, the following accounting entries are created:

Account type Dr Cr Period ID
Contract Liability 1000   202007
Revenue   1000 202007
Contract Liability   1000 202007
Revenue 1000   202007
Contract Liability 1000   202008
Revenue   1000 202008
Contract Liability   1000 202008
Revenue 1000   202008
Contract Liability 1000   202009
Revenue   1000 202009
Contract Liability   1000 202009
Revenue 1000   202009
Contract Liability 1000   202010
Revenue   1000 202010
Contract Liability   1000 202010
Revenue 1000   202010
Contract Liability 1000   202011
Revenue   1000 202011
Contract Liability   1000 202011
Revenue 1000   202011
Contract Liability 1000   202012
Revenue   1000 202012
Contract Liability   1000 202012
Revenue 1000   202012

Scenario 3 - CM-C line collected after RORD

In this scenario, a CM-C line is collected after the RORD line has knocked off the invoice schedule. The CM-C line will be converted to CM-RO for the invoice amount that is knocked off by the RORD line.

The current open period is Jan-2020. Both the SO line and the invoice line are collected in Zuora Revenue in January 2020. The POB ratable method is Immediate using current open period.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 SO 12000 1200 1/1/2020 12/31/2020 0 1200 202001
1.1 INV 12000 1200 1/1/2020 12/31/2020 0 1200 202001

The accounting entries are created as follows:

Account type Dr Cr Period ID
Contract Liability   1200 202001
Contract Liability 1200   202001
Contra Revenue   1200 202001

In the Feb-2020 period, the RORD line is collected for $300. The dates of the RORD overlap with the dates of the invoice. The release of the RORD line follows the POB ratable method of the SO line.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 RORD -300 -300 12/1/2020 12/31/2020 0 -300 202002

A contra entry will be created for $300, which is the minimum of the RORD amount and the invoice amount. The accounting entries are as follows:

Account type Dr Cr Period ID
Contract Liability   300 202002
Contra Revenue 300   202002
Contract Liability 300   202002
Contra Revenue   300 202002

Then, the CM-C line is collected in the Mar-2020 period.

Line ID Transaction Type Ext. Sell Price Allocatable Start Date End Date Deferred Recognized Period ID
1.1 CM-C -1200 -1200 12/1/2020 12/31/2020 0 -1200 202003

After the CM-C line is processed, a portion of the CM-C amount is converted to CM-RO amount. The converted amount equals to the RORD amount, which is $300 in this example.

Account type Dr Cr Period ID Note
Contract Liability 300   202003 CM-RO entry
Contra Revenue 300   202003 Contra reversal
Contract Liability   300 202003 Contra reversal
Contract Liability 900   202003 CM-C
Contract Liability   900 202003 Invoice reversal
Revenue 900   202003 Invoice reversal
Contract Liability 900   202003 Unbilled recognize
Revenue   900 202003 Unbilled recognize