Issue/Symptom/Question

What methods does PENTA use to calculate earned revenue on Maintenance Contracts?

Environment

PFW PENTA

Windows in Article:

Service Management>Setup>Service Types

Resolution/Fix/Answer

The various methods to calculate earned revenue on Maintenance Contracts are maintained within the Service Type window

Earned Revenue Calculations:

Method #1 – Recognize earned revenue and cost at the end of the coverage period

• This means that PENTA will:
  • Not recognize any earned revenue or cost until the coverage period of the Maintenance Contract has ended
  • Any billings or cost incurred before then will be recorded to balance sheet accounts until the Coverage Period ends and then they will be moved to the Income Statement

 Method #2 – Accrue earned revenue during the coverage period: contract days/days in coverage period, cost as incurred

• Revenue will be earned in each accounting period based on the number of days passed since the beginning of the coverage period/total days in coverage period.
• For a Coverage Period that was for 1 year starting 1/1/18 and ending 12/31/18 for $12,000, PENTA will recognize revenue as of 1/31/18 as follows:
  • 31/365 X Total Contract Amount of $12,000 = $1,019 and recorded on the Income Statement
  • Costs recorded on Work Orders linked to a Maintenance Contract will be linked to it as they are incurred in PENTA and recognized on the Income Statement

 Method #3 – Earned equals billed to date, cost as incurred

• Revenue will be earned in each accounting period as billings are posted 
• Costs recorded on Work Orders linked to a Maintenance Contract will be linked to it as they are incurred in PENTA and recognized on the Income Statement

Optional Checkbox – Use Maintenance Contract Earned Revenue Rules for Work Orders linked to Maintenance Contracts – at Service Type level

• This means that PENTA will:
  • Use the revenue recognition rules and accounts for the Maintenance Contract’s Service Type on all Work Orders set up for this Maintenance Contract.
  • Post cost and revenue to the Maintenance Contract’s OU instead of the Work Order’s OU.

  • This box ensures consistency of revenue recognition calculation for Work Orders linked to Maintenance Contracts. PENTA always uses the revenue recognition rules for the Maintenance Contract’s Service Type. When you set up Maintenance Contracts, this box eliminates the need to make revenue recognition calculation decisions on these Work Orders.