RORD and CM-RO accounting entries
Beginning from version 37.007.00.00, whenever RORD line is collected, Zuora Revenue will credit the unbilled Contract Liability (CL with Unbill Flag = Y). When CM-RO line is collected, Zuora Revenue will then convert unbilled Contract Liability to billed Contract Liability (CL with Unbill Flag = N) based on the CM-RO amount.
In addition, if Net Billed Amount is greater than Net Sell Price after RORD line is collected, a Contra AR entry will be created. Net Billed Amount is the sum of the invoice, normal credit memo, invoice cancellation, and credit memo for reduction order. Net Sell Price is the sum of sales order and reduction order. The amount of the Contra AR is calculated as follows:
Contra AR = Net Billed Amount - Net Sell Price = (Sum of INV, CM, CM-C, and CM-RO) - (Sum of SO and RORD)
If RORD parent line is being released using any ratable method, the release of the RORD line follows the same ratable method of the parent line. However, the RORD line release will be based on its own dates. If no revenue is released for any periods, the RORD line will not be released for the corresponding periods.
- Contract Ratable
- Ratable
If RORD parent line is being released using the following method, Zuora Revenue will use either the current open period or the line start date open period, whichever is later to reduce the revenue:
- Immediate using start date
- Immediate using current open period
Scenario 1 - RORD collected after invoicing
In this scenario, the RORD line is collected after the invoice 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 is on hold for release.
| Line ID | Transaction Type | Ext. Sell Price | Allocatable | Start Date | End Date | Deferred | Released | 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 |
In the same period, the following RORD line is collected. The Net Sell Price is the sum of SO and RORD amount, which equals $6000 and the Net Billed Amount is the invoice amount, which is $12000. Net Billed Amount is greater than Net Sell Price, so Contra AR entry is created for $6000.
| Line ID | Transaction Type | Ext. Sell Price | Allocatable | Start Date | End Date | Deferred | Released | 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.
| Line ID | Transaction Type | Ext. Sell Price | Allocatable | Start Date | End Date | Deferred | Released |
|---|---|---|---|---|---|---|---|
| 1.1 | SO | 12000 | 6000 | 1/1/2020 | 12/31/2020 | 6000 | 0 |
The accounting entries are created for the RORD line.
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability | 12000 | 202001 | |
| Contract Liability | 6000 | 202001 | |
| Contra AR | 6000 | 202001 |
The Contra AR reversal happens when the CM-RO line is collected for the RORD amount in the Feb-20 period.
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability | 12000 | 202001 | |
| Contract Liability | 6000 | 202001 | |
| Contra AR | 6000 | 202001 | |
| Contract Liability | 6000 | 202002 | |
| Contra AR | 6000 | 202002 | |
| Contract Liability | 6000 | 202002 |
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 | Released | 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, RORD line is collected. 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 | Released | Period ID |
|---|---|---|---|---|---|---|---|---|
| 1.1 | RORD | -6000 | -6000 | 7/1/2020 | 12/31/2020 | -6000 | 0 | 202007 |
A contra entry is created for $6000 in the Jul-2020 period, which equals Net Billed Amount ($12000) minus Net Sell Price ($6000). The accounting entries are as follows:
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability | 6000 | 202007 | |
| Contra AR | 6000 | 202007 |
When the remaining 50% of the revenue is released in the 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 | |
| Contra Liability | 6000 | 202007 | |
| Contra AR | 6000 | 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 reduced revenue and created Contra AR entries. When CM-C line joins, Zuora Revenue will perform unbilled to billed conversion for Contract Liability and reverse the Contra AR entries.
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 | Released | 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 | |
| Revenue | 1200 | 202001 |
In the Feb-2020 period, the RORD line is collected for $300. 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 | Released | 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 equals Net Billed Amount ($12000) minus Net Sell Price ($12000-300). The accounting entries are as follows:
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability | 300 | 202002 | |
| Contra AR | 300 | 202002 | |
| Contract Liability | 300 | 202002 | |
| 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 | Released | 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 the RORD amount, which is $300 in this example.
| Account type | Dr | Cr | Period ID | Note |
|---|---|---|---|---|
| Contract Liability | 1200 | 202003 | CM-C initia entry | |
| Contra AR | 300 | 202003 | Contra reversal | |
| Contract Liability | 300 | 202003 | Contra reversal | |
| Contract Liability | 900 | 202003 | Invoice reversal | |
| Revenue | 900 | 202003 | Invoice reversal | |
| Contract Liability | 900 | 202003 | Unbilled recognize | |
| Revenue | 900 | 202003 | Unbilled recognize |
Scenario 4 - Both unbilled and billed contract liability exist
In this scenario, when RORD is collected, there are both unbilled and billed contract liability entires. As designed, Zuora Revenue will always debit the unbilled contract liability for the RORD line. After that, a CM-RO line is collected. Zuora Revenue will debit the billed contract liability for unbilled to billed conversion based on the CM-RO amount.
The current open period is Jan-2021. Both the SO line and the invoice line are collected in Zuora Revenue in January 2021. The POB ratable method is Upon Booking.
| Line ID | Transaction Type | Quantity | Ext. List Price | Ext. Sell Price | Start Date | End Date | Period ID |
|---|---|---|---|---|---|---|---|
| 1.1 | SO | 5 | 1000 | 500 | 1/1/2021 | 5/31/2021 | 202101 |
| 1.1 | INV | 5 | 500 | 250 | 1/1/2021 | 3/15/2021 | 202101 |
The waterfall revenue is as follows:
| Period | 202101 | 202102 | 202103 | 202104 | 202105 |
|---|---|---|---|---|---|
| Number of days | 31 | 28 | 31 | 30 | 31 |
| Waterfall revenue | 102.65 | 92.72 | 102.65 | 99.34 | 102.65 |
The accounting entries are created as follows:
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability (Billed) | 250 | 202101 | |
| Contra Liability (Billed) | 102.65 | 202101 | |
| Revenue | 102.65 | 202101 | |
| Contra Liability (Billed) | 92.72 | 202102 | |
| Revenue | 92.73 | 202102 | |
| Contra Liability (Billed) | 54.63 | 202103 | |
| Revenue | 54.63 | 202103 | |
| Contra Liability (Unbilled) | 48.02 | 202103 | |
| Revenue | 48.02 | 202103 | |
| Contra Liability (Unbilled) | 99.34 | 202104 | |
| Revenue | 99.34 | 202104 | |
| Contra Liability (Unbilled) | 102.65 | 202105 | |
| Revenue | 102.65 | 202105 |
In the Mar-2021 period, the RORD line is collected for $260 as follows:
| Line ID | Transaction Type | Quantity | Ext. List Price | Ext. Sell Price | Start Date | End Date | Period ID |
|---|---|---|---|---|---|---|---|
| 1.1 | RORD | -3 | -520 | -260 | 3/16/2021 | 5/31/2021 | 202103 |
The waterfall revenue for the RORD line is as follows:
| Period | 202101 | 202102 | 202103 | 202104 | 202105 |
|---|---|---|---|---|---|
| Number of days | N/A | N/A | 16 | 30 | 31 |
| Waterfall revenue | N/A | N/A | -54.03 | -101.30 | -104.68 |
The Net Sell Price is the sum of SO and RORD lines, which is $240. The Net Billed Price is the invoice amount, which is $250. Net Billed Price is greater than Net Sell Price, so contra entry is created for $10. The RORD line will debit the unbilled contract liability.
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability (Unbilled) | 48.02 | 202103 | |
| Revenue | 48.02 | 202103 | |
| Contract Liability (Billed) | 6.01 | 202103 | |
| Revenue | 6.01 | 202103 | |
| Contract Liability (Billed) | 10 | 202103 | |
| Contra AR | 10 | 202103 | |
| Contract Liability (Unbilled) | 101.30 | 202104 | |
| Revenue | 101.30 | 202104 | |
| Contract Liability (Unbilled) | 104.68 | 202105 | |
| Revenue | 104.68 | 202105 |
In the Apr-2021 period, a CM-RO line is collected as follows. Then, Net Billed Amount is $240, which equals Net Sell Price ($240). The contra revenue reversal happens.
| Line ID | Transaction Type | Quantity | Ext. List Price | Ext. Sell Price | Start Date | End Date | Period ID |
|---|---|---|---|---|---|---|---|
| 1.1 | CM-RO | -0.0385 | -20 | -10 | 3/16/2021 | 5/31/2021 | 202104 |
The accounting entries are as follows:
| Account type | Dr | Cr | Period ID |
|---|---|---|---|
| Contract Liability | 10 | 202104 | |
| Contract Liability | 10 | 202104 | |
| Contra AR | 10 | 202104 |