Creating Journal Entries

REVLOCK supports both the deferral and recognition of revenue and the capitalization and amortization of costs of obtaining a contract (sales commissions).

REVLOCK uses your revenue related accounts which are mapped to your GL system making it easy to post these entries (either manually or automatically).

Let's use a really simple example to walk through how the entries are created in REVLOCK.

In this example, Widget Inc sells a subscription to their "widget builder" as an annual subscription X for $12,000 and pay their star salesman Revy a commission of $600 that is paid upfront. The commission is determined to be capitalizable under Widget Inc.'s accounting policy. The invoicing system is setup to automatically establish an accounts receivable (A/R) balance and recognize revenue for the same amount.

Understanding Revenue Entries

Day 1 Revenue Entry

In this case the entire earned amount was recognized but needs to be deferred. REVLOCK will automatically produce the following entry

Revenue Deferral

Day 2 Revenue Entry

Subsequent to establishing the deferred revenue balance, REVLOCK will determine the amount of revenue to recognize on a monthly basis and perform the following entries:

Revenue Recognition

Understanding Commissions Entries

Day 1 Commissions Entry

Since the entire commission amount was fully earned and will be capitalized, we first needs to establish the deferred cost for such amount.

Commissions Expense Deferal

Day 2 Commissions Entry

Subsequently, amortization of the commission is taken over the estimated customer life as documented in REVLOCK (in this case 2 yrs) and is expensed every month for the next 24 months as follows:

Commissions Amortization

That's all there is to it.

Note that your day one entries might vary depending on how the invoicing or commission systems produce entries (for example your invoicing system might already be establishing a deferral in which case you would want to contra the amount or not book the Day 1 entry produced by REVLOCK).
Was this article helpful?
Cancel
Thank you!