All about revenue recognition

Revenue recognition is a common accounting procedure that officially accounts for revenue earned.

This process allows companies to accurately account for the value of services they’ve performed, but may not have been paid for yet.

For example, say you’re contracted to complete a three-year project, but won’t be fully paid for your work until completion. To ensure a true picture of the financial state of that project, you’ll need to credit part of that revenue to each of the three years.

Revenue is recognized when payment is earned (that is, when agreed-upon work obligations are fulfilled), and is not dependent on when an invoice is sent or payment is received.

Recognizing revenue allows a company to:

• Determine and report on their company’s true financial health
• Make accurate revenue forecasts
• Report their true financial status to investors and shareholders

And, it helps them meet the IFRS 15 and ASC 606 finance standards.

Understanding revenue recognition in Polaris

Polaris offers an easy-to-use revenue recognition feature that automatically calculates forecasted revenue and recognizable revenue, based on policies you assign to each billable project.

Using Polaris for revenue recognition provides several advantages:

• Fast and easy monthly recognition of revenue
  In Polaris, revenue and forecasting are calculated automatically based on per-project revenue policies, which means revenue managers need only confirm data before finalizing it.
  
  Plus, earnings data is collected right in Polaris, so real-time data from all projects is available; this prevents delays in finalizing revenue, since revenue managers don’t need to contact project managers offline to get that information.
  
  

• Support for several revenue calculation models
  Polaris includes five out of the box policy types, that cover the most common revenue calculation models. Plus, we can create custom policies, if needed. And, you can assign different policies to different projects, in case you work in multiple industries governed by different policies.
  
  

• Accurate real-time forecasting
  Since earnings data is recorded within Polaris, revenue calculations are always up to date and accurate. This allows Polaris to account for any changes in data that impact the forecasts in real time, instead of only after a change is made.
  
  

• Helps support compliance with international financial standards
  The IFRS 15 and ASC 606 audit standards require revenue policy terms, performance obligations, delivery timelines, and transaction prices to be clearly defined; All of these criteria are laid out in Polaris’ revenue policies, which helps in proving compliance.
  
  

Revenue recognition workflow in Polaris

1. Project managers assign a revenue recognition policy to each billable projects.
2. Project team members record hours against projects, if applicable.(1)
3. Polaris applies revenue policy rules to the project. This generates recognizable revenue and revenue forecasts.
4. Once a month, a revenue manager (or other appointed manager) confirms recognized amounts, and closes the book for the month. They can defer revenue for recognition in a later month, if needed.
5. Revenue manager can export revenue data to your general ledger, for use in financial planning and forecasting. Amounts are also available to view in the Revenue Entry report, which can be scheduled for delivery to interested parties.

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(1) Only As Incurred and Draw Down policies require entry of time.