Event Recognition
Overview
In some transactions, the purchased products or services are delivered at later time upon certain triggering events. Such scenarios are common for e-commerce companies with shipment and companies selling gift cards.
Accounting principle requires revenue to be recognized proportionally based on the triggering event. For example, one or more redemption events can happen to a gift card after it was originally purchased. The redeemed amount should be recognized each time.
Event recognition rule is available on Leapfin Platform to book transaction amounts according to triggering events.
Configuration
Required fields
| Fields | Description |
|---|---|
date | Date financial impact occurred (ex. invoiced), Default: date |
amount | Amount to recognize on the date with regard to the impact |
Required accounts
| Account | Description |
|---|---|
| A/R Account | e.g Accounts Receivable |
| Deferral Event Debit Account | e.g. Deferred Revenue |
| Recognition Event Credit Account | e.g. Recognized from Deferred or Sales Revenue |
Walkthrough
A classic example of Event Recognition in action is when Gift cards are bought and redeemed by customers. The revenue recognition in this case is dependent on when the service has been truly rendered which is at the time a gift card is redeemed.
Event #1: Gift Card Purchase
Let's assume that a customer(s) has purchased $1000 worth of gift cards. At this point, cash has been received by the customer(s) but the goods/services have not been provided yet.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 01/01/2022 | Account Receivable | $1000 | |
| Deferred Revenue | $1000 |
Event #2: Gift Card is Redeemed
An event is triggered the next month (February 15, 2022) where the gift card is redeemed by the customer(s). In this case, the gift card redeemed is services provided by the company to the customer, and revenue will be recognized.
| Date | Account | Debit Amount | Credit Amount |
|---|---|---|---|
| 02/15/2022 | Deferred Revenue | $1000 | |
| Sales Revenue | $1000 |
Side Note
By default, the Journal Entry is written to the associated Line Item for which the event relates to. In case there are other cases (ie. standalone Events), we can write the Journal Entry to the Event Recognition record itself.
Updated 6 months ago