CUSTOMER

Event-Based Revenue Recognition for

Customer Projects – SAP S/4HANA Cloud
Version 1.03
April 2021
 SAP S/4HANA Cloud Event-Based Revenue Recognition

Document History

Version Date Change

1.0 2019.1 Initial Version
1.01 2019.4 Updates for 1902
1.02 2019.7 Updates for Usage-Based Billing
1.03 2021.4 Updates for Configuration including SAP Central Business Configuration,
corrections

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

Purpose of This Document

The goal of this document is to explain in detail how event-based revenue recognition
works in SAP S/4HANA Cloud for customer projects.
This document will be relevant for revenue accountants, controllers and project
managers within an organization.
In SAP S/4HANA Cloud, event-based revenue recognition:
· Enables revenues to be instantly recognized and displayed when certain events
occur (e.g., when costs are incurred and posted in a project)
· Provides real-time reporting with full transparency to all revenues recognized
with no need for reconciliation
· Supports the matching principle with costs and revenues matched and recorded
as they occur
· Supports manual revenue recognition postings
· Provides an audit trail of all revenue recognition entries

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

Table of Content
I. Introduction: Framework & Principles....................................................................................6
1. Framework ..................................................................................................................................6
2. General principles .....................................................................................................................7
i. What events trigger revenue recognition? ..............................................................................7
ii. Derivation of Billing Material out of the Activity Type ............................................................7
iii. Pricing .......................................................................................................................................8
3. Period End Runs ...................................................................................................................... 11
i. Results of period-end runs ..................................................................................................... 12
ii. Log of Revaluation calculation (Explanation Tool) .............................................................. 12
II. SSCUIs & Customizing Logic for the role of configuration experts .............................. 16
1. Cloud Customizing Self Services for Event-Based Revenue Recognition ....................... 16
a. Maintain Settings for Event-Based Revenue Recognition.................................................. 20
b. Derivation of Recognition Keys for Projects ........................................................................ 22
c. Define Replacement Rules of Recognition Keys................................................................. 24
III. EBRR Scenarios...................................................................................................................... 24
1. Time & Expense (T&E) Projects ............................................................................................ 24
1.1 Project Creation & Maintain Billing Plan ............................................................................ 25
1.2 Time Confirmation & Expense posting............................................................................... 26
a. Revenue Recognition for Time Confirmation .............................................................26
b. Revenue Recognition for Expense postings ..............................................................30
1.3 Billing..................................................................................................................................... 34
a. Release Billing Proposal............................................................................................34
b. Non-billable item........................................................................................................35
c. Billing.........................................................................................................................37
d. Revenue Recognition for Billing .................................................................................38
1.4 Period End closing ............................................................................................................... 41
1.5 Optional for T&E Projects.................................................................................................... 43
a. Write offs in Release Billing Proposal .......................................................................43
b. On-Account payment for T&E contracts.....................................................................43
c. CAPS Reporting (Caps in T&E billing)/ Billing Cap for Time & Expense Projects.......48
d. Down payment ..........................................................................................................52
2. Fixed Price Projects ................................................................................................................ 60
2.1 Plan sources for Fixed Price Contract type ....................................................................... 61
2.1.1 Definition of plan cost ...........................................................................................61

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

2.1.2 Definition of plan revenue .....................................................................................64

2.1.3 Pre-delivered plan sources for Fixed Price contract type ......................................65
2.2 Revenue recognition methods for fixed price contract type ............................................. 66
2.2.1 Cost-Based POC Method .....................................................................................66
2.2.2 Quantity Based POC Method ...............................................................................78
2.2.3 Cost Based POC - Target Revenue Method .........................................................84
2.2.4 No Revenue Recognition Method .........................................................................87
2.2.5 Revenue Based Method .......................................................................................89
2.2.6 Completed Contract Method .................................................................................93
2.3 SSCUIs for recognition methods ........................................................................................ 97
3. Periodic Service Projects ....................................................................................................... 99
3.1 Periodic Services projects ................................................................................................. 100
3.1.1 SPPC - Periodic Services ................................................................................... 100
3.1.2 SPPC1 - Periodic Services (No Cost def) ........................................................... 108
3.1.3 SPNPC - Periodic Services No Rev Rec ............................................................ 113
4. Usage Based Billing .............................................................................................................. 113
4.1 Overview ............................................................................................................................. 113
1) Create new material P004 (optional if P004 does not exist).................................. 114
2) Revenue Recognition Key for Usage Based in SSCUI .........................................116
4.2 Example .............................................................................................................................. 117
5. Foreign Currency Scenario.................................................................................................. 126
Principles of Revenue Recognition for FX scenario: ...................................................... 126
a. Time Confirmation ................................................................................................................ 132
b. Expense postings................................................................................................................. 133
c. Billing ..................................................................................................................................... 135
d. Period End Runs .................................................................................................................. 137

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

I. Introduction: Framework & Principles

1. Framework
The principle of Event-based Revenue Recognition (EBRR) is that one source
document creates 2 journal entries. The entry of a source document (e.g. time
confirmation) produces two separate journal entries:
§ A journal entry for the cost recording; and
§ A journal entry for the revenue recognition posting

Event-based Revenue Recognition (EBRR) works based on the following premise:

§ Only accounting documents on objects relevant for revenue recognition trigger
recognition calculations and postings. For example, time confirmation and expense
recording will trigger revenue recognition. Processes that do not create a source
document will not result in any event-based revenue recognition postings. For
example, changes to plan data or status will not result in event-based revenue
recognition postings. (Except for when the project status is set to ‘Completed’, WIP
is written-off which results in revenue recognition).
§ Calculations for EBRR postings are based on the values of the originating source
document.
§ Costs and revenues are recognized as they occur and matching principle for costs
and revenues are provided.
§ Subsequent postings affecting the revenue recognized amounts (e.g. price
changes) will not instantly adjust previously posted EBRR entries. However, when
period-end run is performed, all necessary revenue recognition adjustments are
automatically recorded for those subsequent postings that affect revenues. These
adjustments take into account all journal entry line items, current planned cost data,
write-offs and current project status. Also, during period-end run, balance sheet
amounts relating to contract assets and contract liabilities are offset so that only the
net amount of the contract asset/liabilities is displayed on the balance sheet.

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§ Event-based revenue recognition allows you to measure profitability in real-time,

without any manual adjustments or batch runs. However, if additional manual
revenue journal entries are required, manual revenue recognition postings are
supported.

2. General principles
i. What events trigger revenue recognition?
q Time postings via CATS - trigger revenue recognition posting. The revenue
amount posted is based on SD pricing as determined from a simulation of SD billing.
q Expense posting - When hours and expenses are posted, Dynamic Item Profile
(DIP) determines whether these items are billable. For billable items, revenue
amount posted is calculated based on the following:
a) DIP determines the appropriate materials to be used; and
b) DIP calls a Debit Memo simulation that reads Pricing from the pricing app to determine
the price and cost to be recorded for these materials.
q However, CATS is not the only way how revenue recognition is triggered.
Other activities, such as activity allocation could also trigger EBRR– it rather
depends on the account to be posted to against the project, than the tool used to
do that.
q Billing – triggers revenue recognition postings as follows:
a) Creation of the Invoice document posts directly to an Income Statement account (Billed
Revenue); and
b) Reposts the billing amount to Deferred Revenues (debit Revenue Adjustments).
q Period End Runs – records revenue recognition postings on data changes that
don’t involve source documents (e.g., price changes, etc.).
Normally, revenue recognition data is sufficiently up to date for decision making
purposes but to ensure 100% accuracy and completeness on revenue postings, a
period closing run is necessary to account for any additional revenue
adjustments.

ii. Derivation of Billing Material out of the Activity Type

All engagements which have a contract type of Time & Expense billing will receive a
special treatment during the debit memo request creation via the so called “Resource
Related Billing” procedure. This feature is used whenever the app “Release Billing
Proposal” is called. The engine for this functionality is the Dynamic Item Processing –
Profile (DIP-Profile). In the DIP profile the original contract material in the billing item
will get replaced by the billing material according to the material determination rules
customized in the DIP profile. For service materials the rule defined is set up like this:
· Activity Type (T001 – T020) + posting to any account of cost element group
YBPS_T000 lead to the billing material of the same name as the activity type.
Example:
Activity Type T001 + cost posting on account 94308000 è Billing material T001

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

Although it is currently not possible to create new activity types to derive more billing
materials and extend the DIP profile in the backend, we do deliver a set of
functionalities that allow you to store cost rates and prices on a very granular level
even in the planning phase of your projects.
In the illustration below, DIP converts P002 (sales order item 1) to the billing material
item T002 in the Debit Memo Request (DMR) and in the customer invoice.

iii. Pricing
Maintain Sales Price Conditions
For revenue planning and billing of performed service effort during a project, the sales
material is used for sales price determination. Due to the direct relationship between
activity type (internal view – costs) and the sales material (external view – revenue)

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the system finds out of the cost and effort postings of the employee, the correct sales
material to find the maintained price in one of the tables listed below:
PCP0 – Project-specific Price (Condition: PCP0)
Field in access
Condition
Access Master WBS Billing WBS Work Material Service Personnel
Table Name Work Item ID
number Project ID Element Package Number Organization Number
(DDIC name)
WBS_
WBS_BILL_ SERVICE_ WORK_ITEM_
CPD_MP_ID WORK MATNR PERNR
ELEMENT DELIV_ORG ID
PACKAGE
10 A4AK X X X X
20 A4AK X X X X X
30 A4AK X X X X
40 A4AK X X X
50 A4AK X X X X
60 A4AK X X X
70 A4AK X X X
80 A4AK X X X X
90 A4AK X X X
100 A4AK X X
110 A4AK X X X
120 A4PB X X

PSP0 – Standard Price (Condition: PSP0)

Field in access
Condition
Access Sales Distribution Customer Material Service Personnel
Table Name Work Item ID
number Organization Channel Number Number Organization Number
(DDIC name)
SERVICE_ WORK_ITEM_
VKORG VTWEG KUNNR MATNR PERNR
DELIV_ORG ID
10 A4AJ X X X X X

Material / Customer 20 A4AJ X X X X X X

Number / Serv Org 30 A4AJ X X X X X
etc. 40 A4AJ X X X X
50 A4AJ X X X X X
60 A305 X X X X
Material / 70 A4AJ X X X X
Customer 80 A4AJ X X X X X
Number 90 A4AJ X X X X
100 A4AJ X X X
Material with 110 A4AJ X X X X
Release Status 120 A304 X X X

Conditions represent a set of circumstances that apply when a price is calculated. A

condition type defines which types of prices, discounts, and surcharges exist in the
SAP system to represent certain conditions.
SAP Pricing Procedure contains all condition types and the sequence when these
are to taken into account during pricing. During pricing, the system automatically
determines which pricing procedure is valid for a business transaction, and considers
the following:
• The variable factors for the calculation, such as the sales organization or the
project ID of a customer project, to determine the final price or cost. The
information about each of these factors can be stored in the system as master
data in the form of condition records.

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

• The access sequence is a search strategy with which the SAP system searches
for valid condition records for each condition type during pricing. Access
sequences for condition types cannot be changed in S/4HANA Cloud.
SAP S/4HANA Cloud Pricing Procedure Overview:
SAP Pricing Procedure is determined based on these criteria, starting from most
specific to most general:
1. Customer Pricing Procedure from customer master data
2. Document Pricing Procedure from sales document type / billing type (if
configured)
3. Sales Area of the service order header level (Sales Organization +
Distribution Centre + Division)

For Professional Services, SAP S/4HANA Cloud delivers certain standard pricing
procedures:
1. A****1: Services Sales (****: company code)
2. A****3: Services Intercompany

Once the pricing procedure is determined, condition records are fetched. If appropriate
condition records are found, the price is determined. If Mandatory pricing condition is
missing, the system will throw an error message.
Note: Pricing procedure related to expenses:
For expenses/other purchase costs, it is standard that cost is taken from sales
price if no specific sales price is maintained.

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3. Period End Runs

Keep in mind that revenue recognition postings are only generated for events that
involve source documents.
Events that don’t involve source documents have no immediate effect
on revenue recognition – even if they affect the percentage of completion or
the revenues. An example of these events is project stage change.
Normally, revenue recognition data is sufficiently up-to-date for decision making
purposes. However, there are certain activities that occur after the source documents
are posted that impact recorded revenues. Examples include rate changes and
expense adjustments. In this case, to ensure recorded revenues are accurate and
complete, a period closing run is necessary to generate entries to account for these
changes. The closing run takes the following factors into account:
q All journal entry line items
q Current EAC data
q The current project status

Period-end closing run performs the following steps:

1. Read the full history of all costs and revenues.
2. Calculate the total recognized revenue and recognized cost of sales.
The total recognized revenue and recognized cost of sales is calculated based on the
plan data and the pricing for resource-related billing.
3. Clear accruals against deferrals.
4. Calculate the difference between the revenue recognition values after
accrual/deferral clearing and the history of the posted costs and revenues.
This information is sent to summary and error handling for collective processing, and
an explanation of the difference calculation is updated.
5. Create revenue recognition items from the calculated difference
Revenue recognition items are created based on the difference calculated in the
previous step.
6. Post calculated difference to the accounts
7. Update reports
Apps that display event-based revenue recognition data are also updated. Source
documents are also generated by the closing process itself.

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i. Results of period-end runs

At the end of each month/day (period end), you can run period-end closing for your
P&L accounts (along with the balance sheet accounts) to see how your customer
project is doing. There are three options offered in S/4 HANA Cloud to support period-
end closing.
1. App “Run Revenue Recognition-My projects” - As the project manager, use
this app to run period-end closing for all your customer projects.
2. App “Run Revenue Recognition-Projects” - As the sales accountant, use this
app to run period-end closing for each individual project.
3. “Revenue Recognition (Event-Based)-Projects” - Use the “Revalue” button
in the app to run period-end closing at item level.
With period-end run, accrued revenue is netted against deferred revenue for
each billing item.

ii. Log of Revaluation calculation (Explanation Tool)

S4HANA Cloud supports revaluation of revenue recognition accounts at any time
during the period, to allow you to perform a manual closing of a project, without having
to wait until period end to run period-end closing. This capability allows you to do the
following:
· Simulate period-end closing entries for the selected project
· Display an explanation of the simulated entries
· Post the entries to revalue revenue-related accounts for manual closing

To start the revaluation process, open the app “Revenue Recognition (Event Based)
- Project” or the app “Run Revenue Recognition Projects”.
To view the steps executed during revaluation, there is a log that explains the
revaluation calculation. This log also serves as a prima nota document for the posted
revaluation document.
1. Start the Revaluation Process

§ Open the app “Revenue Recognition (Event Based) - Project” and select the
detail sign for the example scenario.

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§ On the next screen, select the action “Revalue”.

§ On the next screen, select the action “Explain Simulation” to view the step-
by-step action taken by the system.

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2. View the log for the revaluation calculation

This log provides a detailed step-by-step view on the revaluation calculation and
entries generated by the system. This also serves as a prima nota document for a
posted revaluation document.

Step 1: explains the object and parameters of period end closing. Note the following
in the example below:
§ The period-end closing is triggered manually by “Revalue” and takes all the
postings in period 4 into consideration for calculation.
§ The object is WBS Element I1000.0.1.
§ The accounting principle is local GAAP.
§ The period is 4.

Step 2: explains the cost-related values by the manual period-end closing: the actual
cost and the recognized cost in period 4. These are the values as the result of the
calculations from all the previous periods.

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Step 3: explains revenue-related values by the period closing. These are the values
as the result of the calculations from all the previous periods.

Step 4: explains the related values from data base for transitory items, which are not
cloud-relevant, hence 0 results here.

Step 5: explains the revalued calculation for unbilled revenue. At period end, there is
no unbilled revenue (WIP) for this item.

Step 6: explains the overall result of the calculations for the manual closing. If there
is any manual postings of costs or revenue, or if there is any unbilled revenue, you
would see the updated values here. In the example, the recognized values stay the
same.

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Step 7: explains the assignment rules, source at period end. Explains what the
difference between the old and new values, which will then be posted.

II. SSCUIs & Customizing Logic for the role of configuration

experts
1. Cloud Customizing Self Services for Event-Based Revenue
Recognition
Depending on your configuration environment for SAP S/4HANA Cloud, you can
perform the configuration tasks through the ‘Manage Your Solution’ application as
part of the Implementation Cockpit or use SAP Central Busines Configuration.
In case the app ‘Manage Your Solution’ is used, you can navigate to the
configuration steps of Event-Based Revenue Recognition in the following way.

Log on to the SAP Fiori launchpad as a Configuration Expert - Business Process

Configuration. Open the app ‘Manage Your Solution’.

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Continue there with the Guided Configuration, Configure Your Solution.

Note: remember to set the country version to your country.

You find the relevant items by searching for Revenue Recognition.

You define the settings for event-based revenue recognition by selecting the details
icon. Five configuration steps will be offered:
1. Maintain Settings for Event-Based Revenue Recognition
2. Derivation of Recognition Key for Projects
3. Derivation of Recognition key for Service Documents
4. Derivation of Recognition Key for Sell from Stock
5. Define Replacement Rules of Recognition Keys
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 SAP S/4HANA Cloud Event-Based Revenue Recognition

The step 1, step 2 and step 5 might be required to complete the settings for the
customer projects scenario.

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

In case you use SAP Central Business Configuration, the navigation path to the
Event-Based Revenue Recognition configuration steps is as follows.
Log on to the project experience in SAP Central Business Configuration.
In the Realize Phase, navigate to the Configuration Activities tab. You may search for
the configuration steps of Event-Based Revenue Recognition directly or find the
steps under the Content Hierarchy ‘Configure Accounting’. The configuration steps
relevant for the customer projects scenario are:
· Maintain Settings for Event-Based Revenue Recognition
· Derivation of Recognition Key for Projects
· Define Replacement Rules of Recognition Keys

For example, search for the ‘Maintain Settings for Event-Based Revenue
Recognition’ activity. Select the activity and click ‘Go to Activity’ to navigate directly to
the SAP S/4HANA Cloud system. Log on to the SAP Fiori Launchpad as a
Configuration Expert – Business Process Configuration.

The configuration tasks that need to be performed for the customer projects scenario
can be found in the preliminary steps of the test scripts for the scope items 1IL,1P0,
and 33O.
· 1IL: Event-Based Revenue Recognition - Project-Based Services
· 1P0: Event-Based Revenue Recognition - Project-Based
Services - IFRS
· 33O: Event-Based Revenue Recognition - Project-Based Services - US
GAAP

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a. Maintain Settings for Event-Based Revenue Recognition

Here you might need to perform following activities or can review the default settings
of revenue recognition.
· Source assignments: Here you maintain in principle which postings take part in
revenue recognition. This is controlled using the cost elements.
· Assignment rules: Here you maintain the account assignment of revenue
recognition, where you assign G/L accounts to the sources. Usages tell the
system how revenue recognition shall treat the amounts of a particular source.
Some special usages do not need a source. They are part of the posting rules.
· Derivation of recognition keys: Here you review the available recognition
keys. The recognition key determines the way how revenue recognition
calculates. It also provides a visibility option for revenue recognition keys.
In the step “Recognition Keys”, users can Show or Hide recognition keys.
When you choose Hide, the revenue recognition key is no longer be displayed
in the value help of event-based revenue recognition apps or background
jobs
· Document Types: Review the default settings of document type and financial
statement version and so forth.

Sources are used to classify which financial document line items are relevant for
Event-Based Revenue Recognition on the basic of its cost elements. By including a
cost element category, a cost element group, a single account (in the account from
field) or a range of accounts a list of cost elements is specified. Sometimes condition
types are needed to grab plan values from sales documents. If you enter multiple
values in one line, they will be added/merged (regarded as an OR). You can also
define that some cost elements, accounts, or condition types are not to be included
(choose "exclude" in this case).You typically need at least two sources. One source
for costs and a second source for revenues.
Two principles for which postings potentially take part in event-based revenue
recognition. The first condition is, that the cost element of a particular journal entry
item is assigned to a source in the source assignment. The second condition is that
an appropriate posting rule for the assigned source exists.
Usually this step is necessary if you create additional cost elements which now need
to be assigned to a source.
You cannot define new sources, but you can change the content of each source. The
first option you have is to check out the used cost element groups here and later
assign you the cost elements you created to one of the existing cost element groups.
The second option is to add new lines and with a new cost element group or directly
use the columns “Account from” and “Account to”.

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 SAP S/4HANA Cloud Event-Based Revenue Recognition

Via the assignment rules you assign usages and G/L accounts to the sources. The
assignment rule determines how to interpret the financial document line items of the
prima nota postings (input). The interpretation is based on the cost elements of the
line items and classified by the usage of the assignment rule. The assignment rule
also determines the G/L accounts for the revenue recognition postings (output).
Usages tell the system how revenue recognition shall treat the amounts of a
particular source. Some special usages do not need a source.

You have to specify a chart of account for which you want to define the source
assignment and posting rule. Here you assign a source from the previous step in
order to specify which financial document line items serve as input for the assignment
rule item. Specify a usage (which basically determines whether the assigned values
are revenue or costs and optionally provides special additional calculations like
reserves for imminent loss or currency result) and add the accounts / cost elements
where the revenue recognition posts to. You can enter multiple lines for a chart of
account. They are processed in the order determined by the column "Sequence".
Since you cannot define own sources, you cannot add additional lines. The column
“usage of values” classifies the source with respect to revenue recognition and
defines how they are processed. You cannot not change this too.
Here you might change the accounts which are used for postings of revenue
recognition. These are the accounts which are used for postings of Event Based
Revenue Recognition. You cannot not define new assignment rules, but you can
change the content of each rule.

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b. Derivation of Recognition Keys for Projects

Here you configure which recognition key initially shall by derived when a project item
or sales order item is created. The recognition key determines the way how revenue
recognition calculates. You maintain an initial recognition key, if you do not want to
use revenue recognition for one of the presented scenarios.
The assignment rule which you defined in the previous step represents a set sources
and usages together with the account determination for revenue recognition. If
applicable also a source for the plan values and plan version needs to be maintained.
There is no possibility to define own recognition keys. The column “Recognition Key”
here represents the recognition key.

There are four main item categories are used for customer projects.

PS01 Fix price items

PS02 Time and material based billing items
PS06 Periodic service items
PS07 Usage-Based Billing

These recognition keys are delivered for customer projects. It depends on your
release whether you see the complete list.

SPFC SP: Fix Price Cost based POC: Recognition

Revenue is recognized on cost based percentage of keys for fix
completion. The plan costs originate from an price items
automated estimation of completion calculation. COGS
are recognized as they occur.
SPFCCM SP: Fix Price Completed Contract Method:
Revenue and COGS are recognized by the period end
closing run, when the stage of a project is completed.
SPFCQ SP: Fix Price Cost based POC by QTY:
Revenue is recognized on quantity based percentage
of completion. The quantities which are used here

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need to be of the quality time duration like hours.

COGS are recognized as they occur.
SPFCR SP: Fix Price Revenue based POC:
COGS are recognized based on a revenue based
percentage of completion. Revenues are recognized
as they occur.
SPFCTR SP: Fix Price Cost based POC Target Rev:
This method functions like SPFC, but an additional
calculation is added. This additional calculation
evaluates employee time recording as target revenue
via SD conditions. Thus you may report your margin
with respect to the origin profitcenter also for fix price
projects.
SPNFC SP: Fix Price POC No Rev Rec:
Revenues and COGS are recognized as they occur.
The period end closing will clear existing revenue
recognition postings, except effects from bundling.
SPTCCM SP: Fixed Price Completed Contract Method TECO:
Recognize costs and revenues as occurred when
project is completed (Status TECO), otherwise defer
costs and revenues
SPNTM Time and Material DIP based: No rev rec: Recognition
Revenues and COGS are recognized as they occur. keys for time
The period end closing will clear existing revenue and material
recognition postings. based billing
items
SPTM Time and Material DIP based:
Revenue is recognized by evaluating unbilled time and
expenses based on SD conditions and adding the
billed revenue. COGS are recognized as they occur.
SPNPC Periodic Services No Rev Rec: Recognition
Revenues and COGS are recognized as they occur. keys for
The period end closing will clear existing revenue periodic
recognition postings, except effects from bundling. service items
SPPC Periodic Services:
This will recognize revenue based on billing plan items
and COGS based on actual costs by time. The timely
distribution as based on financial periods.
SPPC1 Periodic Services (No Cost def):
This will recognize revenue based on billing plan by
time. COGS are recognized as they occur. The timely
distribution as based on financial periods.

The revenue recognition key needs to be maintained in the master data of the object,
then the rules for event-based revenue recognition will be applied.

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c. Define Replacement Rules of Recognition Keys

Event-Based Revenue Recognition provides the option of parallel valuation. Here
you can create a replacement rule for the existing recognition key by assigning a
replacement recognition key to a certain combination of accounting principle and
standard recognition key.
For example, you can maintain a completed contract method for the local ledger. In
the parallel ledger that follows, IFRS accounting principle users can maintain the cost
based POC method.

The logic in Event-Based Revenue Recognition is to assign the revenue accounts

identified for sales transactions to Event-Based Revenue Recognition sources and
assign sources and posting rules to revenue recognition accounts, e.g. accruals,
deferrals, revenue adjustments. In this way, revenues can be adjusted as deferrals or
accruals according to the effect of postings. In S/4 HANA Cloud, it is possible to have
sub-accounts of billed revenue account, e.g. Billed Revenue Domestic, Billed
Revenue Foreign. But in Event-based Revenue Recognition, only one G/L account of
each revenue or cost category is delivered to post revenue and costs, and there are
no sub-accounts supported for each G/L accounts. Explicitly speaking, there is only
one G/L account supported for accrual revenue, deferred revenue, and revenue
adjustment. But in reporting you can always show disaggregation of accrual revenue,
deferred revenue, and revenue adjustment by using different filters, e.g. customer…

For details of account determination in Event-Based Revenue Recognition in

S/4HANA Cloud please see the note: 2778479.

III. EBRR Scenarios

1. Time & Expense (T&E) Projects
Example scenario:
A consulting company starts a 1-year project with a client to implement a new IT system.
It is agreed that the company bills the client based on the time and expense spent by
consultants to perform the work packages in the project.
The following sections follow the step-by-step process flow to demonstrate how the
system recognizes revenues in real-time. After each step where revenue recognition
is triggered, you can immediately check the results in the App Revenue Recognition
(Event-Based) Projects.

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1.1 Project Creation & Maintain Billing Plan

To start a project, the project manager creates a customer project in SAP S/4HANA
Cloud.
A. In the initial planning phase:
· A work package is created for the customer project; and
· One consultant is assigned to this work package.
B. In the contract preparation phase:
· The “Billing” Tab is unfrozen so the project manager can maintain the billing
plan. As agreed, the customer pays based on time and expenses incurred by
consultants.
· The contract type “Time and Expenses” is chosen as the billing type for the
billing item.
In the billing item, you can enter the service material required (default demo
material: P002, see Note) and assign the work package and enter the amount
to be billed.

Note: Although DIP profile cannot be extended in SAP S/4HANA Cloud, there is a
possibility to create new P-materials which are considered by DIP profile:
• Copy existing P-Material
• Item category should be PSTE always
Otherwise, any new materials created will not be recognized by DIP profile to
ensure the correct material for billing item.

· Planned revenue is calculated based on the service price and hours planned for
the consultant.

Note B

Note A

Maintain billing item in Tab Billing in App “Plan Customer Project”

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Note A: In contract type “Time and expenses”, amount to be billed and planned
revenue are not relevant for revenue recognition.
Note B: You can specify the service price for the customer project in “Service
Price list” in “Billing” tab. This price overrides the standard price and will be
taken for revenue recognition. You can also use App “Set Service Price” to
maintain project-specific prices.
C. To add details to the billing plan
· For contract type ‘Time & Expense’, the amount that can only be billed is
based on expenses posted to the customer project. Therefore there is no
need to maintain billing due date and billing amount. (see Note)

Note: For revenue recognition you don't need to maintain billing due date & amount.
But to be able to create invoices, you would need to make 1 billing line with billing due
date per invoice you want to make. According to what has been agreed with the
customer, you can set this up when creating project: e.g. if you invoice on a monthly
base, you setup 1 billing line per month for the duration of the project.

· In Item Usage, you can also choose usage ‘Payment on Account’, which will
be explained in chapter 4.2.

Detail view of billing plan in App Plan Customer Project

1.2 Time Confirmation & Expense posting

a. Revenue Recognition for Time Confirmation

In the project execution phase, for the same example above, the following activities
are made:
· The project manager staffs a senior consultant to execute the project.
· The consultant confirms his availability and starts working on it.
· On day April 13, the consultant records 10 hours on his timesheet and the
project manager approves his time records.

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Consultant records 10 hours for his work

Upon time confirmation (CATS time confirmation), revenue simulation is
performed.
(1*) The time confirmation of 10 hours is posted as cost on the project (work package),
and realized revenues are posted on the assigned billing item. EBRR entry posted by
the system:
DR WIP Accrued Revenue (BS account) $1,000 (10 hours @ $100/hr)
CR Revenue Adjustments (P&L account) $1,000

In this example, sales price for each consultant hour is $100 and cost is $65/hour.
Therefore for 10 hours service, the recognized revenue is $1000 and recognized cost
is $650.

To Monitor Revenue Recognition Details:

To view real-time revenue recognition results and revenue postings and to enter
manual adjustments, go to the App “Revenue Recognition (Event-Based)-Projects”
(business role: Sales_Accountant). It lists all billing items relevant for the event-based
revenue recognition with the amounts posted for recognized/actual/planned values.

App “Revenue Recognition (Event-Based) Revenue Recognition”

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You can select the example billing item and drill-down to the details. It displays the
amount of recognized revenue/costs/margin and current balance of revenue
accounts in real time.

The App “Revenue Recognition (Event-Based)-Projects” for billing item after time
confirmation
In the tab ‘Income Statement’, the basis of the amounts displayed are as follows:
· Recognized Revenue = Billed Revenue + Revenue Adjustments
· Recognized COS = Actual cost + COS adjustments
· Based on our example, ‘Recognized Revenue’ is $1000 (Billed Revenue = 0,
Revenue Adjustments = $1000) as the system credited Revenue Adjustments
for $1000 upon time confirmation.

In the tab “Balance Sheet”:

· Under ‘Contract Assets’, the current balance of “Accrued Revenue” is $1000 as
the system debited ‘Accrued Revenue’ for $1000 upon time confirmation.

To Check G/L Entries:

To check the journal entry created upon time confirmation, open the App “G/L
Account Line Items-Reporting View”. You can either use the role General Ledger
Accountant to access to the App or jump directly to it from the App, “Revenue
Recognition (Event-Based) Projects”.
In this example, with the filter “reference document” 1405 (CATS time confirmation
from above), there are two journal entries displayed which are created upon time
confirmation.
Note: If “Project Definition” is used as the filter, then only one side of the cost &
invoice will be displayed. The reason is that with filter “Project definition” you only see
the journal entry item posted on customer project.

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For example, if you use filter “Project Definition” to see the journal entry of cost upon
time confirmation, only the debit side of journal entry is displayed since cost is
transferred from cost center to the project.

G/L Account Line Items – Reporting View upon time confirmation (note: select the line
item using the filter “reference document”-via the G/L line item app.
The journal entry 2300000087 is the CO posting for the time confirmation.
Upon time confirmation, costs are transferred from the consultant’s cost center to the
customer project where he records hours. In this example, 10 hours are transferred
from the cost center to the project and the cost amount is calculated based on the
actual cost price.
DR Activity Allocation – Project $650 (+10 hours x $65/hour)
CR Activity Allocation - Cost Center $650 (-10 hours)

The journal entry 100007626 is the event-based revenue recognition posting.

The business transaction type TBRR indicates that the journal entry is created by
event-based revenue recognition.
DR WIP Accrued Revenue (BS account) $1,000 (+100 hours x $100/hour)
CR Revenue Adjustments (P&L account) $1,000

(You can also immediately see how revenue is recognized right after the time
confirmation by going to the “Project Profitability” report (screenshot examples will be
added in Final Document))
T-account view after time recording:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR). In addition, the cost object to which the postings happen are
indicated below:

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b. Revenue Recognition for Expense postings

The consultant makes some expenses while travelling to the customer site. On April
16, $200 are posted as travel expenses on the customer project.

Post Travel Expenses

When expenses are posted, event-based revenue recognition is triggered.
Realized revenue and costs are posted on the assigned billing item/work package
and displayed in the event-based revenue recognition apps based on semantic tags
and the financial statement version. For an expense posting, the derivation chain is
as follows:

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* FSV node = Combination of GL accounts

* Semantic tags = short text identifiers used to represent key figures,
allow you to set up a list of tags and corresponding key figures and
assign these tags to FSV items
* Key figure = outcome in reporting app

1. The source document is created for an expense.

2. The G/L account posted by the journal entry item is selected based on
the account determination settings.

3. The Actual Costs node in the financial statement version is determined based
on the G/L account posted by the journal entry item.

4. The Actual Costs semantic tag is determined based on the node in the
financial statement version.

5. Finally, the Actual Cost key figure in the app is determined based on the
semantic tag.

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In the example, when travel expenses for $200 was posted to the project, the system
triggered the following EBRR entry:
DR WIP Accrued Revenue (BS account) $200
CR Revenue Adjustments (P&L account) $200

To Monitor Revenue Recognition Details:

In the App “Revenue Recognition (Event-Based)-Projects”, you see the updated
balances of accounts in the income statement and balance sheet. The recognized
revenue and recognized COS are both increased by $200. The balance of accrued
revenue is $1200 ($1000 from time confirmation + $200 from travel expense posting).

The App “Revenue Recognition (Event-Based)-Projects” for billing item after posting
expenses
To Check G/L Entries:
To check the journal entries created by posting expenses, navigate directly from here
to the App “G/L Account Line Items-Reporting View” to. Below we see only one
side for the “travel posting” for cost due to the selection based on “Project Definition”
to filter the relevant journal entries posted on your customer project. This is because
in the journal entry you only see cost side on the debit side since cost is transferred
from cost center to the project.

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G/L Account Line Items – Reporting View for the customer project after posting
expenses
(note: here filter “Project Definition” is used. If filter “reference document” is used, you
will see two sides of the posting.)
Note: The reference key “Reference Document” shows the Prima Nota of both the
cost and revenue postings, so you can also use filter “reference document” to see both
line items of the “travel expense posting”.
T-account view after posting expenses:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR). In addition, the cost object to which the postings below are
indicated.

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1.3 Billing
On April 17, the project manager bills the customer as the consultant has performed
work to the project. The project manager uses the App “Plan Customer project” to
maintain the billing plan and set the billing due date as current date April 17.
a. Release Billing Proposal

Billing proposal for the project in the App “Release Billing Proposal”
In the App “Release Billing Proposal”:
· In the screenshot above, the billing item of the customer project is selected. The
billing amount is automatically calculated based on the billable worked hours
and expenses. In the example, you see the billing amount for the project is 1,000
consulting service + 200 travel expense = $1,200
· You have the option to write off billing items. (See Chapter 1.4. Optional for
T&E Projects – Write offs in Release Billing Proposal”)
· You can write off hours and expense amounts. When confirmations are written
off and released in the App “Release Billing Proposal”, the corresponding
realized revenue G/L Line items for these confirmations are reversed
automatically.

In the scenario example, there are no hour /expenses that need to be written off or
postponed, so the project manager releases the billing proposal as it is.

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b. Non-billable item
With T&E projects, it is possible that some of the billed amounts are not accepted by
the customer or companies provide smaller services to customers within a project
without charging them. In this case, these amounts can be marked as ‘non-billable’.
Non-billable amounts are automatically excluded from revenues in revenue
recognition and these items will not be shown in event-based revenue
recognition apps.
In this example, the project manager planned 10 hours as ‘non-billable’ for the time the
consultant spends on testing. Hence, the planned revenue for this item is 0 USD as
shown in the screenshot below.

Let’s say 1-hour service on work item for “Testing” was recorded by the consultant.
The project manager then releases the billing proposal.
In the App “Release Billing Proposal”, this ‘non-billable’ item (1-hour service) shows
a Net Amount of 0 USD (see screenshot below).

Note: Once actual time has been posted for a work item, the item can no longer be
changed from non-billable to billable (or vice-versa).
Note: ‘Non-billable’ items are applicable even if you schedule/staff & register time
outside of S4HC system.

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To Monitor Revenue Recognition Details:

To view updated revenue amounts, open the App “Revenue Recognition (Event-
Based) - Projects”. Based on transactions made above, the updated amounts are
now as follows:
· The actual cost/recognized cost is increased by $65 and is now $915,
comprised of:
o Time confirmation $650 (10 hours @ $65/hour)
o Travel expense posted $200 (actual cost of expense posted)
o Non-billable time for testing $ 65 (1 hour @ $65/hour)
Total $915
· The recognized revenue stays the same as no revenue is recognized for the
non-billable item.

Note that the non-billable postings are not billed to the customer; but costs are
recognized, and project margin and customer profitability calculations are updated
accordingly.

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c. Billing
Pricing Procedure for Services in the billing document (refer to chapter
‘Pricing’):
Based on the pricing procedure described in chapter ‘Pricing’, the system reads all the
condition records and provides the relevant information for revenue calculation.
In this example:
§ Standard price (PSP0) is taken, as no Project specific price (PCP0) is
maintained.
§ For billing purposes, only the actual cost of expenses posted are used to
calculate the Gross Amount to be billed.
o Time confirmation $1000 (10 hours @ sales prx $100/hour)
o Travel expense posted $ 200
Gross Amount to be billed $1200
Note : The 10 hours (PC01) that are “non-billable” are excluded from the billing
computation (see previous section on “Non-Billable”).

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d. Revenue Recognition for Billing

With billing, event-based revenue recognition is triggered. Billing results in:
§ Creation of an invoice to the customer, which is posted to an income statement
account (Billed Revenue);
§ Entry to repost to Deferred Revenue (with debit to Revenue Adjustments)

The following part of the chapter will explain G/L postings against deferred revenue in
more detail.
To navigate directly to the EBRR entry, open the app “Create Billing Document”
and can click on the billing entry.
To Check G/L Entries:
To check the Revenue Recognition document that was created at the time of billing,
open the app “Manage Journal Entry” (shown below).

Revenue recognition document created with billing

The two-line items here show the debited and credited amount for the hours and the
expense posted.

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The App “G/L Account Line Items-Reporting View” shows the updated view for
journal entries created at time of billing. The journal entries with the reference
document 90008299 (invoice) are created with billing.
Journal Entry 9400000226 is the FI-document for invoice.
DR Accounts Receivable $1,200
CR Billed Revenue $1,200
Journal Entry 100007629 is the event-based revenue recognition posting
(business transaction type TBRR).
DR Revenue Adjustments (P&L account) $1,200
CR Deferred Revenue (BS account) $1,200

The system also calculates the profit in real-time. In this example, system-calculated
profit is $350 ($1200 Revenue minus $850 of costs ($650 + $200)).
With the filter “Project definition”, you can also see current profit for the project is
$350. (Note: with this filter you see the values posted on project. In this example you
see only the credit side of the FI document for invoice which is posted on the project.
If filter “Reference document”-via the G/L Account Line Items app you will see both
sides.)

G/L Account Line Items – Reporting View for the customer project after billing
(note: here filter “Project Definition” is used. If filter “reference document” is used, you
will see two sides of the posting.)

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T-account view after billing:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR). In addition, the cost object to which the postings below are
indicated.

To Monitor Revenue Recognition Details:

The app “Revenue Recognition (Event-Based)-Projects” shows the updated
account balances in the income statement and balance sheet after billing. Note the
following in the screenshot below:
§ The Revenue Adjustment has no balance, since posted expenses and hours
have been completely billed.
§ Accrued Revenue (Contract Assets) and Deferred Revenue (Contract Liabilities)
are both showing a balance of $1,200 since period-end run has not been
performed to offset these accounts against each other.

The App “Revenue Recognition (Event-Based)-Projects” for billing item after billing

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1.4 Period End closing

With period-end run, accrued revenue is netted against deferred revenue for
each billing item.
Continuing with the above example, after all confirmations have been fully billed in April,
the balance of the accrued revenue account ($1,200) equals the balance in the
deferred revenue account ($1,200). Hence, after period-end closing in April where the
accrued revenue account is netted against the deferred revenue account (assets equal
liability), the resulting balance is zero for both accounts.
To Monitor Revenue Recognition Details:
The App “Revenue Recognition (Event-Based)-Projects” shows the updated
balances after period-end closing. Note the following balances:
· Recognized revenue is $1,200
· Recognized Cost is $850.
· Recognized margin is $350.
· Accrued Revenues and Deferred Revenue both have 0 balances.

To Check G/L Entries:

To check the journal entries created by period-end closing, go to the App “G/L
Account Line Items-Reporting View”
Journal Entry 100007636 is the event-based revenue recognition posting for
period-end closing (business transaction type TBRR).
DR Deferred Revenue (BS account) $1,200
CR WIP Accrued Revenue (BS account) $1,200

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T-account view after period-end closing:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR). In addition, the cost object to which the postings below are
indicated.

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1.5 Optional for T&E Projects

a. Write offs in Release Billing Proposal
You can write off hours and expense amounts. When confirmations are written off
and released in the App “Release Billing Proposal”, the corresponding realized
revenue G/L Line items for these confirmations are reversed automatically.
For example:
The project manager has written off 2 hours and released in the App “Release Billing
Proposal”.

The sales accountant can immediately see in the reporting (App “Project profitability”)
that 200 EUR recognized revenue is reversed.

Reporting view before write-off

Reporting view after write-off

b. On-Account payment for T&E contracts
For On-Account postings there are own G/L accounts provided to allow on-account
specific reporting. The on-account billing value should not lead to billed revenue and
must be deferred and shown on balance sheet account for deferred revenue. The on-
account billing will reduce the amount posted to account receivables in case of billing.
There is an own item usage “Payment on Account” available in the billing plan for
T&E contracts. The on-account billing posts on an own revenue G/L account “on
Account issued.” The on-account billing is handled as billed revenues in even-
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based revenue recognition and automatically deferred on own Balance sheet

account. In the billing proposal the on-account billing is shown as “on account
utilized” (handled as negative costs and assigned to an own sales material).
An example of On-Account Payment functionality in T&E projects:

The project manager creates a customer project in SAP S/4HANA Cloud with 10H of
Junior Consultant efforts with T&E Billing:
Project Creation & Maintain Billing Plan

The project is set to Execution.

As a result of the billing plan, there are two parts to the Billing proposals, one for the
T&E billing, and one for Payment on Account:

Billing is released for On Account item & posted as On-account to be billed

(A001) material. With the on-account billing we post on an on-account billing account
and taxes:

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The on-account billing line item is handled as revenue in revenue recognition and
subsequent completely deferred.

Next, Consultant records 10hours.

In T&E billing there is an own G/L account for on-account utilized used. The billed
revenue corresponds to the complete contract value/amount to be billed.
As a result, the recognized revenue is zero. And the on-account billing line item is
handled in billing proposal as negative costs.

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Billing document view:

With the on-account billing we post on an on-account billing account and taxes. The
billed revenue line is assigned to billing WBS element:

In this example, with the Confirmation of 10h consulting time:

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With the billing we post now on billed revenue accounts, second on account G/L
account is debited.
In revenue recognition we defer the consulting revenue as we realized already
with the time confirmation. The revenue recognition account for on account is
cleared.

G/L account line items Reporting View – sorted by reference document:

Final G/L account balances:

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c. CAPS Reporting (Caps in T&E billing)/ Billing Cap for Time & Expense
Projects
Since 1808, a new concept has been delivered in S4HC, “Caps Functionality” in
Time & Material projects – but without a specific reporting. However, there is a
whitelisted CDS view available for customer reporting.
As Project Manager you can define the upper cap limit for T&E Services at the billing
line item. This cap is the upper limit of the amount negotiated with the client,
sometimes called budget, representing the maximum amount for the T&M object to
be billed - even if the object shall be invoiced according to the “effort based” principle
at the moment of contract signature. Project Manager can define it during the project
creation time. The cap value can be equal or higher as the planned revenue for the
T&M object. Usually it is higher as the cap contains a buffer in comparison to the
planned effort.
This cap value can be further monitored in the S4/HANA System periodically by the
project manager to ensure that billing and invoicing does not cross this defined limit.
Business benefits:
Ÿ New type of agreement/contract with the client for T&E by adding upper cap
amount as another dimension.
Feature highlights:
Ÿ Possibility to define the upper cap limit value for the Time and Expense projects
Ÿ Possibility to monitor the project cost associated with the billing cap value
Besides the Cap definition, there is also a threshold value for the cap value for
reporting e.g. “80% of the cap has been consumed”. When the threshold is reached it
will be flagged in red as alert for project manager and project controller.
• Cap Consumption = (Billed Revenue + Billing Due + WIP amount) / Cap
Value
• Physically the Cap Value is stored on the Sales Order Item
An example of Caps functionality in T&E projects:
The project manager creates a customer project in SAP S/4HANA Cloud with 10H of
Junior Consultant efforts with T&E Billing:
Project Creation & Maintain Billing Plan
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In the billing tab, the Amount Cap is set at 1100EUR, planned revenue is 1000EUR.
The Cap Threshold is at 0% at the time of project creation. Billing-amount-cap are
stored on Billing item/Sales Order Item on T&M project objects.

Cap Value stored on Billing Item / Cap Alert Threshold: Highlight cap
Billing WBS / Sales Order Item Level consumption & trigger email alert

During the project execution the degree of consumption of the cap value is visible as
a KPI in project reports at any time.
The cap threshold and the degree of consumption is calculated using the following
project figures:
o Cap: manually entered
o (A) Billed revenue: Amount having been billed so far to the customer,
and released to accounting
o (B) Billing due list (“Fakturavorrat”): all items which are in the state of
being ready for billing but which are not yet billed. E.g. DMR values
o (C) Posted hours and expenses which have undergone the revenue
recognition, but until now have not been converted into a DMR via the
resource related billing

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o Billed revenue, billing due amount and WIP amount have to be summed
up and put into relation to the cap value
· Cap consumption is taken from accounting values (Realized revenues)
and includes
o Billed revenue, which fits to Value (A)
o Accrued revenue (aka “WIP”), which comprises
§ Value (B)
§ Value (C)
In this example, the project is set to Execution and consultant records 12hours (more
than the 10hours planned).

Upon time confirmation (CATS time confirmation), revenue simulation is

performed.
EBRR entry posted by the system:
DR WIP Accrued Revenue (BS account) €1,224 (12 hours @
€102/hr)
CR Revenue Adjustments (P&L account) €1,224

In this example, sales price for consultant hour is €102 and cost is €60/hour. Therefore
for 12 hours service, the recognized revenue is €1224 and recognized cost is €720.

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Cap Consumption (%) = Cap Consumption Amount/Net Amount Cap

= 1224/1100 = 111.27%

Reporting capability: During project execution the degree of consumption of the cap
value is visible as a KPI in project reports any time via the CDS view
C_ENGMNTPROJTMEEXPNBILLGQ Engagement Project Time and Expense Billing

This view can be saved as a separate tile on your Homepage, allowing to track
Caps consumption of your project at any point throughout the execution.

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d. Down payment
For contract type “Time and Expense” projects only, you can request for a down
payment from the customer at the start of the project, prior to delivery of services.
Following are highlights of each step within the down payment process.
Overview:
· Down payment Request (DPR) -
o DPR is not equal to an invoice. It can be issued without prior delivery of
goods or services.
o When a DPR is created and the billing document is posted, it creates a new
G/L ledger document with line items for receivable (i.e., Down payment
Request Customer) and liability (i.e., Contract Liability DP Request). This
liability account is shown on the balance sheet under Deferred Revenue in
the project profitability report.
o DPR is not taken into account for revenue recognition purposes.
· Down payment Received
o Full or partial down payment received reverses the GL entry when down
payment request was created and clears the complete DPR value.
o Received down payment is then shown as a credit to “Contract Liability DP”
account and will be reported as Deferred Revenue.
o At project billing, the AR down payment will be reversed, and the contract
liability will be cleared.
o During period-end revenue recognition posting, accrued revenues and
contract liability balances are netted out against each other.
· Reporting
o For a T&E project with down payment, the balance of total accrued revenue
and deferred revenue are reported in real time in the monitor “Event-Based
Revenue Recognition - Projects”, and all detailed postings for down payment
are available if you jump to “G/L account Line Items” from the monitor.

Example – Down Payment Process:

T-account overview for Down Payment Process:

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Process steps as follows:

Create Down Payment Request

· Create a Billing Proposal
- Log on as “Proj_manage_comm”
- In App “Create Customer Projects”, create a customer project with contract type
“Time and Expense”
- In the ‘Work packages’ tab, add role and resource to the work package and click
‘Save’
- Go back to the ‘Information’ tab, and change the stage of project from ‘In
Planning’ to ‘Contract Preparation’
- Add Billing Item with Billing Plan Definition of ‘Down Payment Request’ for Item
Usage.

- Click the back arrow and you will see the billing proposal created for the down
payment request.

· Release Billing Proposal

- In ‘Information’ tab, change project stage from “Contract Preparation” to “In
Execution”
- In ‘Team’ tab, set Confirmed status to ‘On’ and click ‘Save’.
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- In App ‘Release Billing Proposals’, release the down payment request

- Filter to your Project ID, select billing item you created in previous steps and
select ‘Edit’.
- Select the billing proposal you want to release and click on ‘Release’.

- Once the billing proposal for the down payment request is released, a debit
memo request is created. You will get a pop-up message that the DMR (debit
memo request) for the billing proposal has been created.

· Create a Billing Document for Down Payment Request

- Log on as Billing_Clerk
- In App ‘Create Billing Documents’, create a billing document for the down
payment request.
- Select the SD Document (which is the DMR document created in previous
step) and click ‘Create’.
- In the pop-up window, enter billing type ‘Down Payment Request (FAZ)’ and
click ‘OK’.
- You will now see that the billing document for down payment request has been
created. Click Save.
- You will then need to post the billing document to generate the G/L document.
Click ‘Post Billing Document’.

- In App ‘Display Line Items in General Ledger’ (role: GL Accountant), view

details of the posting of the billing document for the down payment request

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Postings triggered by posting of billing document for the down payment request:
Debit Downpayment Request Customer €1000
Credit Contract Liability DP Request €1000

For the liability line item, WBS element is account assigned to show it in reporting and
profitability segment is derived. The amount of the Contract Liability DP Request is
shown in Profitability report under Deferred Revenue. However, the down payment
request balances are not taken into account for revenue recognition.

Post Incoming Payment on Down Payment Request

- In App ‘Post Incoming Payments’ (role: AR Accountant), enter payment details
for the down payment. Under ‘Journal Entry’, select ‘DZ (Customer Payment)’,
then choose ‘Select More’.
- In the pop-up window, select ‘Special G/L Transactions’ under Line Item Type.
Click ‘OK’.

- Choose the DPR billing document that the payment will be applied to, and Post.

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- A journal entry is successfully generated to post the payment.

Postings triggered by posting of incoming payment on down payment request:

1. Customer payment of €1190 (€1000 + €190 tax)
Debit Petty Cash (BS account) €1190
Debit Tax Accounts € 190
Credit DPR – Customer €1190
Credit Tax Accounts € 190

2. Reversal of DPR
Debit Contract Liability DPR €1000
Credit DPR - Customer €1000
The down payment request is reversed. Note: partial or full payment of the DPR
reverses the entire amount.

3. Allocation of down payment to Liabilities

Debit AR DP Customer €1190
Credit Contract Liability DP €1000
Credit Tax Accounts € 190
The amount posted to ‘Contract Liability DP” represents the amount of down
payment received and is shown as Deferred Revenue in reporting.

In App ‘Display Line Items in General Ledger’ (role: GL Accountant), you will see the
entries above as follows:

In App “Project Profitability” (role – Sales Accountant), you will see that the Contract
Liability DP is reflected as Deferred Revenue in the report.

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Revenue Recognition
Postings triggered for revenue recognition are as follows:
1. Upon time confirmation (Time confirmation employee 5h – Realized revenue €1000)
Debit WIP Accrued Revenue €1000
Credit Revenue Adjustment €1000
Only revenue recognition entries reflected above

2. Upon period revenue recognition

Debit Contract Liability for Down Payment €1000
Credit WIP Accrued Revenue €1000
The down payment received from the customer will be taken into account for
revenue recognition – the contract liability DP account will be netted against the
accrued revenue account.

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In App “Display Line Items in General Ledger’, this netting entry is seen below.

After periodic revenue recognition, in App ‘Project Profitability’, the rev rec balances
are updated showing zero balances for WIP Accrued Revenue and Contract Liability
DP after the netting entry above.

Project Billing
- In App ‘Create Billing Proposal’ (role: Proj_manage_comm), create billing
proposal. In Billing Plan definition, use “Time and Expenses” for Item Usage.
- In App ‘Release Billing Proposals’, release the down payment request. Filter to
your Project ID, select billing item you created in previous steps and select ‘Edit’.
Select the billing proposal you want to release and click on ‘Release’.
- You will get a pop-up message that the DMR (debit memo request) for the billing
proposal has been created.

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- In App ‘Display Line Items in General Ledger’ (role : GL_Accountant), you will
see that billing document (9400000104) includes several additional line items to
the posted GL document, as follows
1. AR down payment reversal – Journal items 000004 to 000007
2. Contract Liability clearing - Journal items 000008 to 000010

- Once the revenue recognition document is posted, in App ‘Display Line Items
in General Ledger’ (role : GL_Accountant), you will see the following postings:
o Clearing Contract Liability DP Liability against WIP Accrued revenue
o Clearing WIP Accrued Revenue against Deferred Revenue

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The final updated balances can be seen in App ‘Project Profitability’ (role: Sales
Accountant).

2. Fixed Price Projects

This scenario addresses the revenue recognition in S/4 HANA Cloud for the typical
business processes of a professional service company that manages customer
projects for which the billing is carried out on the basis of the fixed-price in the billing
plan.

Overview:
§ For fixed price contracts there are 4 revenue recognition methods available in
S/4HANA Cloud today. The revenue recognition keys can be configured via
Revenue recognition SSCUI for customer projects.
- SPFC: Fix Price Cost Based POC (Default) (realize revenue based on
actual costs)
- SPFCQ: Fix Price Cost Based POC by QTY (realize revenue based on
actual quantity of costs)
- SPCTR: Fix Price Cost Based POC Target Revenue (realize revenue
based on actual costs for origin profit centers)
- SPNFC: Fix Price No Rev Rec (does not realize revenue with cost
postings)

With release 1808, there will be 2 new methods available for fixed price
scenario.
- SPFCCM: Fix Price Completed Contract Method (realize revenues and
costs based on completed contract)
- SPFCR: Fix Price Revenue Based POC (realize revenues and costs
based on time of billing)

§ For fixed price contracts the planned revenue for revenue recognition is
defined by the total amount maintained in the “Billing Plan Definition” of a
billing item from App “Plan Customer Project”.
§ Up to release 1805, for fixed price contracts the planned cost for revenue
recognition is defined by the “Dynamic EAC” both during period and at period
end. Starting from release 1808, the planned cost for revenue recognition is
defined by the “Confirmed EAC” during period and the “Dynamic EAC” from
service at period end. The customers went live before release 1808 have the

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option to require for the new calculation logic. The new customers from
release 1808 will get the new logic automatically.

2.1 Plan sources for Fixed Price Contract type

The “Planned Cost” is derived from customer projects and can be maintained in two different
Apps:

- App “Plan Customer Projects”

- App “Review Customer Projects”
Maintaining planned cost in App “Plan Customer Projects” will update the values in App
“Review Customer Project”. Maintaining planned cost (ETC values (hours and/or amount)) in
App “Review Customer Projects” will not update automatically the values in App “Plan
customer projects”.
The origin of each kind of “Planned Cost” used by Event Based Revenue Recognition is the
following:

Note: In the app “Plan Customer Projects”, the button “Sync. With Finance” in Tab “Version”
is available with release 1808. By clicking the button, the ongoing plan costs are updated in
financials for reporting purpose.

2.1.1 Definition of plan cost

In the App “Plan Customer Projects”, resources and expenses can be planned on work
package level.

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a. Baseline plan cost

The baseline plan cost is determined during the first time when project set to stage “In
Execution” and save. The baseline plan cost is not changed as the project progresses.

b. Ongoing plan cost

In execution phase, project manager can maintain the planned resources and expenses in
the App “Plan Customer Projects” and consequently the ongoing plan cost for the customer
project are changed. At the same time, the dynamic EAC and confirmed EAC will be
overwritten with the same value of the ongoing plan costs. It is necessary to click the button
“Sync with Finance” in the Tab “Version” to get your ongoing plan costs updated in financials
for reporting purpose.
Remark: ongoing plan costs are only available for revenue recognition via service center.
Ongoing plan costs = plan cost rate × plan hours (in the App “Plan Customer Project”)
c. EAC plan cost
Estimated to Completion (ETC) stands for the remaining planned costs to complete the
project.
Estimated at Completion (EAC) is the total planned costs to complete the project.
Estimated at Completion (EAC) = Actual cost (AC) + Estimated to Completion (ETC)
- Dynamic EAC: forecasted costs to complete the project. Any real-time cost and effort
posting triggers a new EAC calculation -> value is constantly changing and always
displayed in App “Review Customer Project”

Dynamic EAC= actual cost rate *posted hours + plan cost rate * ETC hours

- Confirmed EAC: forecasted costs to complete the project confirmed by Project

Manager in App “Review Customer Project”. Project Manager can click “Save” button
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to confirm the posted hours and ETC hours. When the planned costs are changed in
the app “Plan Customer Projects”, the confirmed EAC will also be overwritten.

Confirmed EAC= plan cost rate * (posted hours + ETC hours)

Note: the posted hours and ETC hours should be confirmed by project
manager in the App “Review Customer Projects”. It is not possible to “Save”
(confirm) if there is no manual change of ETC. And it is not possible to change
ETC for unplanned roles. In this case, project manager cannot confirm the
posted hours of unplanned roles in App “Review Customer Projects”.

The terms are used to differentiate the base of calculation for “planned cost”.
In the App “Review Customer Projects”, the term “confirmed” and “dynamic” are not visible in
the App “Review Customer Project”. The EAC displayed is always the most current EAC
(taken into consideration all actual postings), which is dynamic EAC. Only if ‘save’ button is
executed the posted hours and ETC hours can be confirmed and taken for the calculation of
the confirmed EAC.

Dynamic EAC will be different to confirmed EAC if:

· Post more than total planned hours used the planned activity type/role (It is
independent of the person who posted hours as along as he/she belongs to the
planned activity type)

· Post hours used the unplanned/unassigned activity type/role

· Plan cost rate is different to actual cost rate

· Post unplanned expenses, e.g., travel expenses

Note: Starting from release 1805, we do not differentiate plan cost rate and actual cost rate in
professional service. But there might be cases that the cost rate used for actual cost
calculation is different to the cost rate used for plan costs calculation. The reason is that the
plan cost rate used in the App “Plan Customer Projects” is retrieved based on the activity
type and cost center. The cost rate used for actual postings is retrieved based on the service
cost level.
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Confirmed EAC will turn to the same as dynamic EAC if:

· In the App “Review Customer Project”, to be able to “Save”, you need to first
manually change ETC. Then the confirmed EAC will be updated and has the same
value as dynamic EAC. It is not possible to “Save” if there is no manual change made
in the App “Review Customer Project”. If the hours are posted by unplanned activity
type, it is not possible to change the ETC manually for this unassigned activity type
therefore it is not possible to confirm these hours. The trick to confirm these hours is
to first manually change ETC of assigned activity type then “Save”. If the plan cost
rate is different as actual cost rate, the confirmed EAC and planned EAC will never be
the same.

· In the App “Plan Customer Project”, the plan costs can be changed, meanwhile, the
confirmed EAC and Dynamic EAC will be overwritten and have the same value as
plan costs maintained in the App “Plan Customer Project”.

In current setup, the project manager can also maintain ETC plan values manually in order to
achieve a certain manual POC for revenue recognition. This procedure might lead into
conflicting considerations. Imagine the following situation: actual costs = 10,000 EUR, ETC =
5.000 EUR, EAC = 15.000 EUR. Based on this the POC would be 66%. Now the project
manager decides, that the POC for revenue recognition from a legal and delivery perspective
is 50% only. In our current set up the customer either can use a wrong manual POC for his
revenue recognition or a wrong ETC and EAC for his reporting. This might be a painful
situation for the project manager.

2.1.2 Definition of plan revenue

There are also several plan values of revenue maintained in the app “Plan Customer
Projects”.
a. Planned revenue for work packages
On work package level, there is revenue calculated based on the planned resources. This
plan revenue value is only for information and not relevant for revenue recognition.

b. Amount to be billed
On the Billing tab, the “amount to be billed” and billing plan must be maintained for the
project. The value of “amount to be billed” can be different to plan revenue value calculated

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for all work packages. However, “Amount to be billed” is not taken as the basis for revenue
recognition.

c. Revenue from billing schedule

On the “Billing plan Definition” for a billing item, project manager can schedule individual
billing due dates for this billing item. The total amount maintained in this schedule can be
lower than the value of “Amount to be billed” but not higher. The planned revenue for
revenue recognition is defined by the total amount maintained in the billing schedule.

2.1.3 Pre-delivered plan sources for Fixed Price contract type

Note: For customers who went life before 1808 the logic will not change with the upgrade to
1808
a. Planned Cost for revenue recognition
Up to 1805 release, Event-Based Revenue Recognition always uses the “dynamic EAC” to
calculate Percentage of Completion (POC) for real-time postings and at period end. This is
independent of whether the customer uses the “Review Customer Project” App or not. For
example, 10 hours service of CONSULTANT4 was planned but unexpected hours from the

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unassigned CONSULTANT 1 were posted. The default handling is that the actual costs are
added to the planned costs – the system expects the planned 10 hours from
CONSULTANT4 plus the extra posted 1 hour from CONSULTANT 1.
Dynamic EAC is the planned costs of 10 hours service of CONSULTANT4 plus the actual
costs of 1-hour service of CONSULTANT 1. There are also other scenarios in which dynamic
EAC might differ from the planned cost of the project. Therefore, the base for POC
calculation is constantly changing in real-time for every event-based cost posting. As
a result, realized revenue values can be fluctuating even for the same cost values, increasing
the complexity of EAC / planned cost calculation. Based on Customer feedback, the solution
is enhanced with release 1808 to make the calculation more transparent.
Starting with release 1808, the system calculates POC during period with a stable plan
value, and at period end with the most current plan value (dynamic EAC).
For customers use the App “Review Customer Projects”:
- Revenue Recognition uses the “confirmed EAC” to calculate POC for event-based
cost postings during a period.
- For the period-end run Revenue Recognition uses “dynamic EAC”.
For Customers does not use the App “Review Customer Projects”:
- Customer cannot confirm the “dynamic EAC” to become a “confirmed EAC”. In this
case EBRR uses the “ongoing plan value from” the “Plan customer Projects” App for
event-based cost postings.
- For the period-end run EBRR uses “dynamic EAC”.
b. Planned revenue for revenue recognition
Revenue recognition uses the plan value defined by the total amount maintained in the billing
schedule.

2.2 Revenue recognition methods for fixed price contract type

2.2.1 Cost-Based POC Method
With cost-based POC method the system calculates recognized revenue on the basis of the
actual costs.
a. Prerequisites
Planned costs and planned revenue are maintained for your customer projects. Please refer
to the previous chapter to see what values for planned costs and planned revenue are
derived for revenue recognition.
Assign the result analysis key SPFC: Fix Price Cost Based POC to the customer project via
Event-based revenue recognition SSCUI.
b. Features in release 1805
Calculation formula:
For event-based cost posting during period, Event-based Revenue recognition calculates
Percentage of Completion (POC) based on actual costs of the posting and the planned costs
for the customer project (dynamic EAC):
POC = actual costs of an event-based cost posting / planned costs (dynamic EAC)
- Actual costs (e.g. time confirmation):

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Cost rate: 45 EUR / h

Time confirmation: 1 hour
Actual costs = number of hours × cost rate = 1h x 45 EUR/h = 45 EUR
- Planned costs:
EBRR always uses the current “dynamic EAC” to calculate POC for event-based cost
postings. This is independent even if the customer uses “Review Customer Project”
App.
Recognized revenue for an event based cost posting = Planned Revenue x POC
For period end closing, Event Based Revenue Recognition continually uses “dynamic
EAC” as a base for POC calculation:
POC = Accumulated Actual Costs / Planned Costs (“dynamic EAC”)
- Accumulated Actual Costs: Total of all actual costs of all event-based cost postings
- Planned Costs: EBRR uses “dynamic EAC” costs independent if the customer uses
the App “Review Customer Projects” to calculate POC.
Recognized revenue = Planned Revenue x POC

Example (release 1805)

A project manager creates a customer project, and maintains original planned costs 450
EUR and planned revenue 800 EUR, for 10hours of effort planned. The process flow of the
example is as follows:
1) Create customer project, maintaining original planned costs 450 EUR and planned
revenue 800 EUR.
2) Record 1 h of consulting with the cost rate of 45 EUR
POC calculation of the first hour of time confirmation
3) Post unplanned travel expense of 100 EUR
POC calculation of the posting of the travel expense
4) Post another unplanned travel expense of 100 EUR (EAC = 550)
5) Period end closing: POC calculation of period end (EAC = 650)

1) Plan Customer Project

In the app “Plan Customer Projects”, the project manager plans resources and assigns a
senior consultant to the work package. The service cost rate for the junior consultant is 45
EUR. The total effort planned is 10 hours. There are no expenses planned for the work
package. The original planned cost is 450 EUR.

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In the app “Plan Customer Projects”, the project manager maintains the billing plan for the
project. The contract type is Fixed Price. The total amount maintained in the billing schedule
is 800 EUR.

Navigate to the app “Review Customer Projects” to check the EAC cost. The confirmed EAC
is 450 EUR. At the beginning, values of baseline, ongoing plan in “Plan Customer Project”
App, and confirmed EAC cost in “Review Customer Project” App are identical.

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2) Time confirmation – 1-hour consulting

The staffed consultant records 1-hour work on the project.
After one hour of consulting is confirmed, the POC for revenue recognition is the following:
POC = actual costs of the cost posting / planned costs (dynamic EAC costs)
POC = 45 EUR / 450 EUR = 10%
In this case, there is no deviation between dynamic EAC and planned costs.
With the first posting, EAC and POC are calculated and displayed in the app “Review
Customer Projects”.

Revenue Recognition calculates the Recognized Revenue using the POC of 10%. Navigate
to the App “Revenue Recognition (Event- Based)- Projects” to check the recognized value of
revenue:
Recognized Revenue for an event-based cost posting = Planned Revenue × POC
Recognized Revenue 1H consulting = 800 EUR x 10% = 80 EUR

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3) Unplanned travel expenses posting

In the same period, the consultant posts unplanned travel expenses 100 EUR on the project.
After posting 100 EUR unexpected travel expenses the POC for revenue recognition is the
following:
Delta POC = actual costs of the cost posting / planned costs (dynamic EAC costs)
Delta POC = 100 EUR / 450 EUR = 22.22%
At time of posting travel expenses, the dynamic EAC is 450 EUR. Revenue recognition uses
the POC calculated on the basis of the dynamic EAC at that moment. After the posting of
travel expense, the dynamic EAC turns to 550 EUR which is original plan cost added by
unplanned travel expenses. In the app “Review Customer Projects” you see the dynamic
EAC after the posting of travel expense. This dynamic EAC will be used as the base for next
POC calculation.
Event Based Revenue Recognition calculates the Recognized Revenue of travel expense
using delta POC of 22%:
Recognized Revenue = Planned Revenue x POC
Recognized Revenue = 800 EUR x 22% = 177.78 EUR
Accumulated Recognized Revenue = Recognized Revenue of first time confirmation +
Recognized Revenue of travel expenses
Accumulated Recognized Revenue = 80 EUR + 177.78 EUR = 257.78 EUR

4) Post another unplanned travel expense

In the same period, the consultant posts another unplanned travel expenses 100 EUR on the
project.
After posting 100 EUR unexpected travel expenses the POC for revenue recognition is the
following:
Delta POC = actual costs of the cost posting / planned costs (dynamic EAC costs)
Delta POC = 100 EUR / 550 EUR = 18.18%

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At time of posting travel expenses, the dynamic EAC is 450 EUR. Revenue recognition uses
the POC calculated on the basis of the dynamic EAC at that moment. After the posting of
travel expense, the dynamic EAC turns to 550 EUR which is original planned cost
added by unplanned travel expenses. In the app “Review Customer Projects” you see the
dynamic EAC after the posting of travel expense. This dynamic EAC will be used as the base
for next POC calculation.
Event Based Revenue Recognition calculates the Recognized Revenue of travel expense
using delta POC of 18.18%:
Recognized Revenue = Planned Revenue x POC
Recognized Revenue = 800 EUR x 18.18% = 145.45 EUR
Accumulated Recognized Revenue = Recognized Revenue of first time confirmation +
Recognized Revenue of travel expenses
Accumulated Recognized Revenue = 257.78 EUR + 145.45 EUR = 403.23 EUR

5) Period end closing

The period end closing is executed for the project.

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Revenue recognition uses the functionality of the app “Review customer projects” for
calculating the POC. Dynamic EAC cost at period end is 650 EUR.
POC = Accumulated Actual Costs / planned cost (dynamic EAC cost)
POC = 245 EUR / 650 EUR = 37.69 %

Revenue recognition calculates the total Recognized Revenue as follows:

Recognized Revenue at period end = Planned Revenue x POC
Recognized Revenue at period end = 800 EUR x 37.69 % = 301,52 EUR

c. Features in release 1808

Calculation formula:
For every event-based cost posting during period, EBRR calculates Percentage of
Completion(POC) based on actual costs of the posting and the planned costs for the
customer project (confirmed EAC):
POC = actual costs of an event-based cost posting / planned costs (“confirmed EAC” or
“ongoing plan”)
- Actual costs (e.g time confirmation):
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Cost rate: 45 EUR / h

Time confirmation: 1 hour
Actual costs = number of hours × cost rate = 1h x 45EUR/h = 45 EUR
- Planned costs:
For Customer uses “Review Customer Project” App: EBRR uses the “confirmed EAC”
to calculate POC for event-based cost postings. For Customer does NOT use
“Review Customer Project” App: EBRR uses the “ongoing plan” value from the “Plan
customer Projects” App for event-based cost postings.
Recognized revenue for an event-based cost posting = Planned Revenue x POC
For period end closing, Event Based Revenue Recognition uses “dynamic EAC” as a base
for POC calculation.
POC = Accumulated Actual Costs / Planned Costs (“dynamic EAC”)
- Accumulated Actual Costs: Total of all actual costs of all event-based cost postings
- Planned Costs: EBRR uses “dynamic EAC” costs independent if the customer uses
the App “Review Customer Projects” to calculate POC.
Recognized revenue = Planned Revenue x POC

Example (release 1808)

A project manager creates a customer project, and maintains original planned costs 450
EUR and planned revenue 800 EUR, for 10 hours of effort planned. The process flow of the
example is as follows:
1) Create customer project, maintaining original planned costs 450 EUR and planned
revenue 800 EUR.
2) Record 1 h of consulting with the cost rate of 45 EUR
POC calculation of the first hour of time confirmation
3) Post unexpected travel expenses of 100 EUR
POC calculation of the posting of the travel expense
4) Post another unplanned travel expense of 100 EUR
5) Period end closing: POC calculation of period end

1) Plan Customer Project

In the app “Plan Customer Projects”, the project manager maintains the planned costs 500
EUR and planned revenue in the billing plan 600 EUR. The assigned consultant is senior
consultant with the service cost rate 100 EUR/h.

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2) Time confirmation – 1-hour consulting

The staffed consultant records 1-hour work on the project.
After posting 1 hour the POC for revenue recognition is the following:
POC = actual costs of the cost posting / planned costs (confirmed EAC costs)
POC = 45 EUR / 450 EUR = 10%
After one hour of consulting is confirmed, the POC for revenue recognition is the following:
Recognized Revenue = Planned Revenue x POC
Recognized Revenue = 800 EUR x 10% = 80 EUR

Scenario a: The project manager checks the value but does not execute “Save” button
After the posting of travel expense, the dynamic EAC turns to 450 EUR which is original plan
cost added by unplanned travel expenses. In the app “Review Customer Projects” you see
the dynamic EAC after the posting of travel expense.. This unplanned expenses 100 EUR
are not confirmed by the project manager. The confirmed EAC for next POC calculation is
still 450 EUR.

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Scenario b:
If the project manager click “Save” button and confirms the unplanned travel
expenses, the confirmed EAC for next POC calculation will be 550 EUR.
3) Post unplanned travel expenses
The consultant posts unplanned travel expenses 100 EUR on the project.
After posting 100 EUR unexpected travel expenses the POC for revenue recognition is the
following:
Delta POC = actual costs of the cost posting / planned costs (confirmed EAC costs)
Delta POC = 100 EUR / 450 EUR = 22.22%
In this case, system also uses confirmed EAC which equals to planned costs 450
EUR—therefore keeping planned cost as a constant base for calculation.
With the first posting, EAC and POC are calculated and displayed in the app “Review
Customer Projects”.
Event- Based Revenue Recognition calculates the Recognized Revenue using the POC of
22.22%:
Recognized Revenue = Planned Revenue × POC
Recognized Revenue = 800 EUR x 22.22% = 178.78 EUR
Accumulated Recognized Revenue = Recognized Revenue of first time confirmation +
Recognized Revenue of travel expenses
Accumulated Recognized Revenue = 80 EUR + 178.78 EUR = 257.78 EUR

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4) Post another unplanned travel expense

In the same period, the consultant posts another unplanned travel expenses 100 EUR on the
project.
In this case, system also uses confirmed EAC again which equals to planned costs
450 EUR.
With the first posting, EAC and POC are calculated and displayed in the app “Review
Customer Projects”.
After posting 100 EUR unexpected travel expenses the POC for revenue recognition is the
following:
Delta POC = actual costs of the cost posting / planned costs (dynamic EAC costs)
Delta POC = 100 EUR / 450 EUR = 22.22%
In this case, system also uses confirmed EAC again which equals to planned costs
450 EUR. (This is the key difference from 1805—in 1805, after the posting of travel
expense, the dynamic EAC turns to 550 EUR which is original plan cost added by
unplanned travel expenses.)

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Event Based Revenue Recognition calculates the Recognized Revenue of travel expense
using delta POC of 22.22%:
Recognized Revenue = Planned Revenue x POC
Recognized Revenue = 800 EUR x 22.22% = 177.78 EUR
Accumulated Recognized Revenue = Recognized Revenue of first time confirmation +
Recognized Revenue of travel expenses
Accumulated Recognized Revenue = 257.78 EUR + 177.78 EUR = 435.56 EUR

5) Period end closing

The period end closing is executed for the project.
At period end the total POC for the customer project is calculated as follows:
POC = Accumulated Actual Costs / planned cost (dynamic EAC cost)
POC = 245 EUR / 650 EUR = 37.69 %
EBRR calculates the total Recognized Revenue as follows:
Recognized Revenue at period end = Planned Revenue x POC
Recognized Revenue at period end = 800 EUR x 37.69 % = 301.54 EUR

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Difference in results from 1805 to 1808:

EAC for POC calculation (Delta) POC

1805 1808 1805 1808
After 1 hour confirmation 450 Euros 450 Euros 10% 10%

After unplanned expense 450 Euros 450 Euros 22.22% 22.22%

After 2nd unplanned 550 Euros 450 Euros 18.18% 22.22%
expense
After period-end closing 650 Euros 650 Euros 37.69 % 37.69 %

2.2.2 Quantity Based POC Method

Within release 1805, there is a new recognition method introduced for quantity based POC.
With this method the system recognized revenue on the basis of the actual quantity.
a. Prerequisites
Planned costs and planned revenue are maintained for your customer projects. Please refer
to the previous chapter to see what values for planned costs and planned revenue are
derived for revenue recognition.

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Assign the result analysis key SPFCQ: Fix Price Cost Based POC by QTY to the customer
project via Event-based revenue recognition SSCUI.
b. Features in release 1805 and 1808
The enhancement of source for planned values in release 1808 does not have major impact
on this method. In the cloud, the unplanned roles and unplanned employees are not able to
post any time confirmation on the project. Therefore, your dynamic EAC hours are always
the same to the confirmed EAC hours. If the project lead changes ETC manually in the app
“Review Customer Projects”, he would always need to confirm this change. Also, the planned
hours in the app “Plan Customer Projects” should stay in sync in order to allow staffing for
the added plan hours.

Calculation formula (1805)

For every time confirmation posting during period, Event-based Revenue recognition
calculates Percentage of Completion(POC) based on actual quantity of the time confirmation
posting and the planned hours for the customer project (dynamic EAC):
POC = actual hours of a time confirmation posting / planned hours (dynamic EAC hours)
Recognized revenue for a time confirmation posting = Planned Revenue x POC
For period end closing, Event Based Revenue Recognition continually uses quantity of
“dynamic EAC” as a base for POC calculation.
POC = Accumulated Actual hours / Planned hours (dynamic EAC hours)
Recognized revenue = Planned Revenue x POC

Calculation formula (1808)

For every time confirmation posting during period, Event-based Revenue recognition
calculates Percentage of Completion(POC) based on actual quantity of the time confirmation
posting and the planned hours for the customer project (confirmed EAC):
POC = actual hours of time confirmation postings / planned hours (confirmed EAC plan
hours)
Recognized revenue for a time confirmation posting = Planned Revenue x POC
For period end closing, Event Based Revenue Recognition continually uses quantity of
“dynamic EAC” as a base for POC calculation.
POC = Accumulated Actual hours / Planned hours (dynamic EAC plan hours)
Recognized revenue = Planned Revenue x POC
With this method, only time confirmation is taken into account. There is no distinguishing of
the confirmed roles – Junior consulting is weighted similar with Platinum consulting. The
calculation is done in hours. If there is unit “work day”, the amount will be converted into
hours before the formula is applied. A “work day” usually counts 8 hours, but this might be
customizing.

Example
A project manager creates a customer project, and plans one consultant for the customer
project. The planned effort is 5 hours. In addition, the project manager plans 100 EUR travel
expense.
The process flow of the example is as follows:
1) Create customer project and plans resources and expenses for the project.
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2) The staffed consultant records 1 h of consulting

POC calculation of the first hour of time confirmation
3) Change planned hours in the app “Plan Customer Projects”
4) The staffed consultant records second hour of consulting
POC calculation of the second hour of time confirmation
5) Period end closing: POC calculation of period end

1) Plan Customer Project

In the app “Plan Customer Projects”, the project manager adds one platinum consultant for
the customer project. The service cost rate of the senior consultant is 75 EUR. The planned
effort is 5 hours. In addition, the project manager plans 100 EUR travel expense. The
planned costs for the customer project is 475 EUR.

The planned revenue maintained in the billing plan schedule is 800 EUR.

Navigate to the app “Review Customer Projects” to check the EAC effort. The EAC effort is 5
hours. At the beginning, quantity of baseline, ongoing plan in “Plan Customer Project” App,
and confirmed EAC effort in “Review Customer Project” App are identical. However, the POC
calculated in the app “Review Customer Projects” is always based on value of costs. In
context of quantity based POC method, POC calculated via this App is not relevant for
revenue recognition.

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2) Time confirmation – 1-hour consulting

The staffed consultant records 1-hour on the project. Revenue recognition calculates POC as
follows:
POC = actual hours of a time confirmation posting / planned hours
POC = 1 H / 5 H = 20%
Recognized revenue for the time confirmation posting = Planned Revenue x POC
Recognized revenue for 1-H consulting = 800 x 20% = 160 EUR

You can also check current effort for EAC and ETC in the app “Review Customer Project”.
After first time confirmation, the ETC remains 4 hours.

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3) Change planned hours in the app “Plan Customer Project”

The project manager estimates one more hour would be needed to complete the project.
Therefore, the project manager maintains the planned effort accordingly in the app “Plan
Customer Projects”. The change is automatically transferred to the app “Review Customer
Project”.

4) The staffed consultant records second hour of consulting

Delta POC = actual hours of a time confirmation posting / planned hours
Delta POC = 1 H / 6 H = 16.667%
Recognized revenue for the time confirmation posting = Planned Revenue x POC
Recognized revenue for 1-H consulting = 800 x 16.667% = 133.33 EUR
Accumulated recognized revenue (WIP) = 160 + 133.33 = 293.33 EUR

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5) Period end closing

In period end closing, revenue recognition calculates the POC on the basis of total actual
hours.
POC = Accumulated Actual hours / Planned hours (quantity of dynamic EAC)
POC = 2 H / 6 H = 33.3%
Recognized revenue at period end = Planned Revenue x POC
Recognized revenue at period end = 800 x 33.3% = 266.67 EUR

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2.2.3 Cost Based POC - Target Revenue Method

The POC-based Revenue Recognition for fixed-price engagements does not allow to
attribute the Origin Profit Center on the generated revenue posting (PC and Origin PC will be
the same). For this, the “Target Revenue” concept is introduced from 1708 to enable detailed
revenue and margin reporting for delivering profit centers on fixed-price engagements.
Overview:
§ Target Revenue provides detailed margin reporting (such as margin by employee) for
fixed price projects.
§ T&M billing is simulated for fixed price projects and the simulated T&M revenues are
posted with event-based rev rec to a dedicated Target Revenue G/L account.
§ The calculation and posting of Target Revenues is activated via the recognition key
SSFCTR assigned to fix price contract type. (see “Configuration Settings” for details)
§ Target Revenue can only be calculated for CPM projects in S/4HANA Cloud
Edition.
Note:
§ For performance reasons, Target Revenue is only calculated and posted in
event-based processing, not in period-end closing. Therefore, error messages
from event-based processing have to be resolved and cannot be deleted,
otherwise target revenue postings would be missing.

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§ However, if you are not using Target Revenue you can still delete the error messages
from event-based processing

Target Revenue Provides Employee and Profit center origin on fixed price customer projects
a. Prerequisites
Planned costs and planned revenue are maintained for your customer projects. Please refer
to the previous chapter to see what values for planned costs and planned revenue are
derived for revenue recognition.
Assign the result analysis key SPFCTR: Fix Price Cost based POC Target Rev to the
customer project via Event-based revenue recognition SSCUI.
b. Example
A project manager during a customer project assigns one consultant from another Profit
center YB101, different from the profit center of the project YB102.
The consultant worked for an hour on the assigned fixed price work package, and posted the
hour.
His Time Confirmation:

The G/L Account Line items-reporting view after the posted hour by filtering on the WBS
Elements:

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Note that both line items for Target Revenue postings are assigned to the same G/L
account “Clearing Target Revenue Reallocation”. The balance of This Account will be
always zero.

§ Target revenue allocation is 80€ as price of an hour for junior consultant

§ The two posting lines will be assigned to different profit centers
§ the Target Revenue is assigned to the employee’s profit center (YB101)
§ the offsetting posting is assigned to the project profit center (YB102)
Debit Activity Allocation – Project Profit Center €80 (+1 hour)
Credit Activity Allocation – Employee Profit Center €80 (-1 hour)
§ The fixed price revenue is assigned to the project profit center (YB102)
Consulting Cost (CO posting):
PoC 2% (1 hour out of the planned 50 hours) * planned cost €2250 = €45 Actual Cost
You can check Project PoC and Cost KPIs overview in the app ‘Review Customer Projects’,
after setting the Forecast Month to the current month:

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Profitability reporting based on target revenue:

When the recognition key for Target revenue is not added, only G/L Account for Consulting is
shown:

2.2.4 No Revenue Recognition Method

SAP also offers customers an option to eliminate event based revenue recognition effect.
With this method the system does not realize revenue with any event based cost posting.
Revenue is realized with posting invoice.
a. Prerequisites
Planned costs and planned revenue are maintained for your customer projects. Please refer
to the previous chapter to see what values for planned costs and planned revenue are
derived for revenue recognition.
Assign the result analysis key SPNFC: Fix Price No Rev Rec to the customer project via
Event-based revenue recognition SSCUI.
b. Example
Project managers creates one customer project with fixed price contract type.
The process flow is as follows:
1) Create customer project and plans resources and expenses for the project.
2) The staffed consultant records 5 h of consulting
3) Create billing document of 800 EUR

1) Plan Customer Project

Project manager maintains the planned cost 375 EUR and planned revenue 800 EUR.

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2) Time confirmation – 5 H consulting

The consultant records 5 hours work on the project. The costs are recognized but there is no
revenue realized based on this cost posting.

3) Create Billing document

The project lead decides to bill the customer completely and release the billing proposal. An
invoice is created in the system and sent to the customer. At the same time, an accounting
document is created for the invoice which posts 800 EUR on “accounts receivable” against
“billed revenue”. Revenue is realized with billing.

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2.2.5 Revenue Based Method

In release 1808, there is a new recognition method introduced to allow you to reserve
unrealized costs at time of billing. With this method, revenue is not recognized with time
confirmation or any other event-based cost postings but at time of billing.
a. Prerequisites
Planned costs and planned revenue are maintained for your customer projects. Please refer
to the previous chapter to see what values for planned costs and planned revenue are
derived for revenue recognition.
Assign the result analysis key SPFCR: Fix Price Revenue Based POC to the customer
project via Event-based revenue recognition SSCUI.
b. Calculation formula
For each billing document posting during period, Event-based Revenue recognition
calculates Percentage of Completion(POC) based on billed amount of the billing document
posting and the planned revenue for the customer project:
POC = billed amount of one billing document posting / planned revenue
Realized cost for one billing document posting = planned cost × POC
For period end closing, Event Based Revenue Recognition takes all billed amount for POC
calculation:
POC = Accumulated billed amount / Planned revenue
- Accumulated billed amount: Total billed amount of all billing proposal
Realized cost at period end = planned revenue × POC
Note: planned revenue can be changed if the project manager adjusts the planned revenue
in the billing schedule in the app “Plan Customer Projects”.

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c. Example
Project manager creates one customer project with fixed price contract type. The planned
costs for the project is 250 EUR. The planned revenue is 400 EUR.

The process flow is as follows:

1) Consultant records 1-hour service
2) Create billing document of 200 EUR
3) Period end closing

1) Time confirmation 1-hour consulting

Upon time confirmation (CATS time confirmation), the cost is deferred and no revenue is
realized. The service cost rate of the junior consultant is 50 EUR. As he records 1 hour, the
total cost is 50 EUR. The cost is completely deferred.
DR WIP Deferred Cost (BS account) € 50 (1 hour @ €50/hr)
CR Cost Adjustments (P&L account) € 50

T-account view after time confirmation:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

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2) Create billing document of 200 EUR

The project manager releases the first billing proposal with 200 EUR. The invoice of 200
EUR is created and sent to the customer. With billing, the revenue is realized and
corresponding cost which needs to be realized is calculated and posted by event based
revenue recognition. The realized cost is calculated based on the percentage of billed
amount in total planned revenue.
POC = billed amount of one billing document posting / planned revenue
POC = 200 / 400 = 50%
Realized cost = planned cost × POC
Realized cost = 250 × 50% = 125 EUR
The cost posting triggered by Event based revenue recognition is:
DR Cost Adjustment (P&L account) € 125
CR WIP Accrued Cost (BS account) € 125

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T-account view after billing:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

3) Period End Closing

With period-end run, netting of accrued cost and deferred cost occurs for the billing item.
DR WIP Accrued Cost (BS account) € 65
CR WIP Deferred Cost (BS account) € 65
T-account view after period end closing:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

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2.2.6 Completed Contract Method

Another recognition method introduced with release 1808 is completed contract method.
With this method revenues and costs will be deferred until the contract is completed. Then
revenues and costs will be realized.
a. Prerequisites
Planned costs and planned revenue are maintained for your customer projects. Please refer
to the previous chapter to see what values for planned costs and planned revenue are
derived for revenue recognition.
Assign the result analysis key SPFCCM: Fix Price Completed Contract to the customer
project via Event-based revenue recognition SSCUI.
b. Sign of contract completion
Contract is completed when:
ü project header “stage” = “completed”
OR
ü All contract items/ WBS billing elements have the status “finally invoiced”
The next period-end run will then realize revenues and costs and cancel all remaining
accruals and deferrals.
c. Calculation formula
In the period end closing after the contract is completed, Event Based Revenue Recognition
realize revenues and costs. The realized revenue is calculated following the same logic of
Cost Based POC calculation at period end.
In period end closing, Event Based Revenue Recognition calculates the amount of revenue
can be realized based on actual costs and posts against deferred revenue. The base for
POC calculation is “dynamic EAC”:
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POC = Accumulated Actual Costs / Planned Costs (“dynamic EAC”)

Recognized revenue = Planned Revenue x POC
d. Example
Project manager creates one customer project with fixed price contract type. The planned
costs for the project is 250 EUR. The planned revenue is 500 EUR.
The process flow is as follows:
1) Consultant records 5 hours
2) Create billing document of 500 EUR
3) Period end closing

1) Time confirmation - 5 hours consulting

Upon time confirmation (CATS time confirmation), the cost is deferred and no revenue is
realized. The service cost rate of the senior consultant is 50 EUR. As he records 5 hour, the
total cost is 250 EUR. The cost is completely deferred.

DR WIP Deferred Cost (BS account) € 250 (5 hours @ €50/hr)

CR Cost Adjustments (P&L account) € 250

T-account view after time confirmation:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

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2) Create billing document of 400 EUR

The project manager releases the billing proposal for 400 EUR. The invoice of 400 EUR is
created and sent to the customer. Event based revenue recognition defers the revenue at
time of billing.
DR Revenue Adjustment (P&L account) € 400
CR WIP Deferred Revenue (BS account) € 400

T-account view after billing:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

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3) Period End Closing

The project is completely fulfilled and invoiced, the project manager changes the project
stage to “Completed”. The period-end run must be executed after the project is completed to
order to realize revenues and costs.
With period-end run, revenues and costs are realized for the billing item. Revenue which can
be realized are calculated as follows:
POC = Accumulated Actual Costs / Planned Costs (“dynamic EAC”)
POC = 250 /250 =100%
Recognized revenue = Planned Revenue x POC
Recognized revenue = 400 x 100% = 400
Cost posting triggered by event based revenue recognition:
DR Cost adjustment (P&L account) € 250
CR WIP Deferred Cost (BS account) € 250

Revenue posting triggered by event based revenue recognition

DR WIP Deferred Revenue (BS account) € 400
CR Revenue Adjustment (P&L account) € 400

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T-account view after period end closing:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

2.3 SSCUIs for recognition methods

Starting with 1808 there are 6 revenue recognition keys in total for fixed price contracts. Each
key needs to be assigned to contract type Fixed Price project material before the contract
type is assigned in the Billing item – see below. Per default “SPFC” is enabled for fixed
price contracts.

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In order to assign a different recognition key, go to Manage your Solution app—Configure

Your Solution (Please remember to select the right country version before, in this case DE):

Click button “Configure” and navigate to the page “ Configure Derivation of Recognition Key”
where you see current recogniton keys assigned to the customer projects.

Then select the Rec. Key SPFC (Project-based Services: Fixed price) and go to the detail
view.

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Click the button “Edit” to change the recognition key for the fixed price contracts. Select for
example the recognition key “SPFCCM” and save.

3. Periodic Service Projects

Periodic Service contract type is used for example for licenses/equipment rentals. In
SAP S/4 HANA Cloud there are 2 types of periodic services supported:
- Periodic services
- Usage based billing

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Customers can define the periodic service type for the dedicated billing item via “item
usage” in the detailed view of billing plan in customer projects.

3.1 Periodic Services projects

This item usage allows billing based on the amount and date provided in the billing
plan. For this service type, for every billing plan item there is a valid period required.
The realized revenues will be calculated by revenue recognition based on the
amount and period. This will be done with a periodic run.

Overview:
§ Revenue will be deferred with the initial posting (source document)
§ The periodic run recognizes revenue time-based on the basis of the billing
schedule (App “Plan Customer Project”)
§ There are three revenue recognition methods offered to calculate revenue and
costs for the service type - periodic services:
- SPPC: Periodic Services (spread of revenue & costs following billing
plan)
- SPPC1: Periodic Services (No Cost def) (costs recognized as incurred)
- SPNPC: Periodic Services No Rev Rec
3.1.1 SPPC - Periodic Services
This method allows revenue recognition based on billing plan items and COGS
based on actual costs by time. The timely distribution as based on financial periods.
Example scenario:
A IT company provides a 1- year maintenance service to a client.
1) Plan Customer Project and maintain billing plan
Project manager plans 100 hours for the maintenance service. A senior consultant is
assigned to the project. The cost rate is 60 EUR/hr.

In the Tab “Billing”, project manager selects the contract type “ Periodic Service”. Based on
it, the corresponding billing method and the revenue recognition method are derived for the
contract item. Here “Material” (P003) is default by contract type “Periodic Service”. The
material can only be overwritten until the first time you save.

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Click the arrow on the right side of the billing item, and navigate to the detail view of
billing plan. Here defines the timeframe and values to be billed, which provides
Event-Based Revenue Recognition the source information of planned revenue and
service duration. For this contract type, for every billing plan item there is a valid
period required. In this case, project manager wants to bill 12,000 EUR for 12
months. The item Usage is “Periodic Service”.
If project manager wants to bill the billing item at recurrent intervals, for example,
every month for one year, he can create copies of an existing billing due date. Enter
the first billing due date and choose the Copy button to define a billing pattern, for
example, every month. The system always copies the first billing due date in the list.
The system creates the billing due dates for the specified time period and the billing
item will be billed according to these billing due dates.
Here the system also shows the status of each billing due date (for example, open or
invoiced).

With SAVE a sales order item is created, in which the billing plan is stored.

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2) Time confirmation
In the Tab “Team”, the staffing of the assigned consultant is confirmed. The WBS
element will appear in the consultant’ time sheet and controls the time confirmation
process.

The consultant confirms 1-hour work.

With the initial posting of 1-h time confirmation, there is NO revenue recognized and
cost is deferred.
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Cost posting triggered by event based revenue recognition:

DR WIP Deferred Cost (BS account) € 60
CR Cost adjustment (P&L account) € 60
T-account view after time confirmation:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

In the App “Revenue Recognition (Event-based)-Projects” check the current values

after time confirmation.

3) Billing and invoice

The project manager releases billing proposal. 12,000 EUR for a complete year is
billed.

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With the initial posting of billing, billed revenue is deferred and reposted to deferred
revenue/WIP.
Revenue posting triggered by event based revenue recognition:
DR Revenue adjustment (P&L account) € 12,000
CR WIP Deferred Revenue (BS account) € 12,000
T-account view after time confirmation:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

In the App “Revenue Recognition (Event-based)-Projects” check the current values

after billing.

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4) Period End Closing

Click button “Revalue” to simulate period end closing. The simulation shows deferred
revenue is decreased by 1000 EUR and 5 EUR cost is realized.

Calculation formula:
Revenue based POC = Time Based POC
= Accumulated periods / total periods of the service
Recognized Revenue = Planned Revenue x POC

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Recognized Cost = Actual cost x POC

In the example, the customer project has the duration of 12 months. For period July
2018, the Time Based calculation of revenue is:
POC = Time Based POC = 1/12 = 8.333%
Recognized Revenue = Planned Revenue x POC = 12,000 x (1/12) = 1,000 EUR
Recognized Cost = Actual cost x POC = 60 x POC = 60 x (1/12)= 5 EUR
Postings triggered by period end closing:
Revenue posting triggered by event based revenue recognition
DR WIP Deferred Revenue (BS account) € 1,000
CR Revenue Adjustment (P&L account) € 1,000

Cost posting triggered by event based revenue recognition:

DR Cost adjustment (P&L account) €5
CR WIP Deferred Cost (BS account) €5

Calculation of net balance of Deferred Revenue:

Balance Amount
Deferred Revenue (balance prior to period- end) 12,000
Deduction of Deferred Revenue (refer to posting during period-end 1,000
run)
Net Balance 11,000
Calculation of net balance of Deferred Cost:
Balance Amount
Deferred Cost (balance prior to period- end) 60
Deduction of Deferred Cost (refer to posting during period-end run) 5
Net Balance 55

T-account view after period end closing:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

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Click button “Post” in the simulation page to execute period end closing. You see the
values are updated in the App “Revenue Recognition(Event-based)- Projects”.

To Check G/L Entries:

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To check the journal entries created by period-end closing, go to the App “G/L
Account Line Items-Reporting View”

Journal Entry 100009704 is the EBRR posting for cost deferrals. Upon confirmation,
the costs are deferred and reposted to deferred costs/WIP.
Journal Entry 100009772 is the EBRR posting for the billing. The revenue is deferred
and reposted to deferred revenue/WIP with billing.
Journal Entry 100009779 is the EBRR posting for costs and revenue realization with
period end closing.

3.1.2 SPPC1 - Periodic Services (No Cost def)

This method will recognize revenue based on billing plan by time. COGS are
recognized as they occur. The timely distribution as based on financial periods.
Example scenario:
A IT company provides a 1- year maintenance service to a client.
1) Plan Customer Project and maintain billing plan
Use the same figures as the example above to create a similar customer project in
the system.100 hours are planned for the maintenance service. A senior consultant is
assigned to the project. The cost rate is 60 EUR/hr. The project starts on July 1st.

2) Time recording
The consultant records 1 hour and it is approved by the project manager.

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With the initial posting of 1-h time confirmation, there is NO revenue recognized but
the COS is recognized at the posting of time confirmation. There is no deferral of
costs.
Cost recognition posting upon time confirmation:
DR Activity Allocation – Project €60 (+1 hours x €60/hour)
CR Activity Allocation - Cost Center €60 (-1 hours)

T-account view after time confirmation:

The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

In the App “Revenue Recognition (Event-based)-Projects”, you see the recognized

COS upon 1-h time confirmation is € 60, but there is no revenue recognized.

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3) Billing and invoice

The project manager releases billing proposal. 12,000 EUR for a complete year is
billed.
With the initial posting of billing, billed revenue is deferred and reposted to deferred
revenue/WIP.
Revenue posting triggered by event based revenue recognition:
DR Revenue adjustment (P&L account) € 12,000
CR WIP Deferred Revenue (BS account) € 12,000
T-account view after billing:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

In the App “Revenue Recognition (Event-based)-Projects” it shows revenue is deferred

completely with billing.

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4) Period End Closing

In the example, the period end run for the first period (period 7) was not carried out.
The first period end run is executed in period 8. The simulation results show that the
revenue for the past 2 months is recognized with this first period run in period 8. 2000
EUR are recognized as revenue and deferred revenue is decreased to 10,000 EUR.
There is no adjustment for costs.

Calculation formula:
Revenue based POC = Time Based POC
= Accumulated periods / total periods of the service
Recognized Revenue = Planned Revenue x POC
In the example, the customer project has the duration of 12 months. In each period,
the Time-Based calculation of revenue is:
POC = Time Based POC = 1/12 = 8.333%
Recognized Revenue = Planned Revenue x POC = 12,000 x (1/12) = 1,000 EUR
Hence, for the last 2 periods, the recognized revenue is 2,000 EUR (1,000 EUR x 2).
Postings triggered by period end closing:
Revenue posting triggered by event based revenue recognition
DR WIP Deferred Revenue (BS account) € 2,000
CR Revenue Adjustment (P&L account) € 2,000

Calculation of net balance of Deferred Revenue:

Balance Amount
Deferred Revenue (balance prior to period- end) 12,000
Deduction of Deferred Revenue (refer to posting during period-end 2,000
run)

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Net Balance 10,000

T-account view after period end closing:
The steps with the apostrophe are the posting resulting from Event-Based Revenue
Recognition (EBRR).

Click button “Post” in the simulation page to execute period end closing. You see the
values are updated in the App “Revenue Recognition (Event-based)- Projects”.

To Check G/L Entries:

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To check the journal entries created after period-end closing, go to the App “G/L
Account Line Items-Reporting View”

Journal Entry 100004712 is the EBRR posting for billing. The billed revenue 12,000
EUR is deferred and reposted to deferred revenue account.
Journal Entry 100004713 is the EBRR posting with period end closing. 2,000 EUR
revenue are recognized for the last 2 periods. Hence, the deferred revenue is
reduced by 2,000 EUR.
3.1.3 SPNPC - Periodic Services No Rev Rec
The method will recognize revenue and COGS as they occur. Revenue is recognized
with billing. Costs are recognized with time confirmation / expenses. The period end
closing will clear existing revenue recognition postings, except effects from bundling.
In the context of bundling, the contract assets or contract liabilities remain at item
level.

4. Usage Based Billing

4.1 Overview
Usage Based Billing allows you to bill your customers for services with a certain usage
volume, e.g. number of service tickets processed in a period, or number of licenses used in a
period. Until 1905, Usage-Based Billing was part of the contract type Periodic Service as an
own item usage. Starting from 1908, Usage Based is offered as a separate contract type
during project planning including correct revenue recognition results.
With the contract type Usage Based, only 10 materials and activity types are pre-delivered by
SAP: U001 – U010 to be used for usage-based billing. To overcome this restriction in
regards to different cost rates and prices for all global role catalogues, please refer to this
Blog. In the billing plan definition, different billing due dates can be scheduled to create a
usage-based billing plan.
For contract type Usage Based (item category PS07), the standard will derive the revenue
recognition key SPTM, which is the very same as for Time & Expenses. Subsequently
revenues will be realized/recognized directly for the posted usage item quantities on this
contract type.
Due to the design of resource-related billing, the used material in the sales order line item is
replaced by the captured service units. The default material/product sold in the sales order
line item is either P004 (if existent in your system) or P002. However, if P004 is not existent
in your system and for a better understanding of the process of resource-related billing, it is
highly recommended to create an own sales/contract material P004 (e.g. through copying

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material P002) for contract type Usage Based. You are able to replace the default material
by your own ones (they normally represent your service product portfolio).
Configuration steps are as follows (optional):

1) Create new material P004 (optional if P004 does not exist)

· Log on as “PRODMASTER_SPECIALIST”
· Open the app “Create Material”
· Copy from P002
· Select only the following views

· Select the applicable organizational levels. It is also possible to copy

organizational data by entering the relevant organizational units in the "Copy
from" section in the below screen shot.

· Complete the relevant data on view Sales: sales org. 1, 2 and Sales:
General/Plant. Note: Please be aware that only materials with Item Category
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Group PSTE will be respected as product sold for the contract type Usage-Based
Billing. If you formerly used materials with Item Category Group PSPS for the
Usage-Based Billing Scenario until 1905 (as part of contract type Periodic
Service), please change the Item Category Group of the according materials to
PSTE.

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· Click on “Save” to create the material

2) Revenue Recognition Key for Usage Based in SSCUI
In standard, the derived revenue recognition key for contract type “PS07” (Usage Based) is
always SPTM independent of the selected material. To double check, please perform the
following steps.
• Log on as “BPC_EXPERT”
• Open the app “Manage Your Solution”
• Open “Configure Your Solution”
• Search and choose “Revenue Recognition”
• Select the configuration step “2. Derivation of Recognition Key for Project-Based
Services”

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• The contract type “PS07” (Usage-Based Billing) in combination with any material (e.g.
P004) will derive the recognition key for contract type Time & Expenses SPTM.

The posting logic is as below.

4.2 Example
An IT company provides a one-year maintenance service to a client. It is agreed that the
contract is billed based on the amounts of the tickets that service center processed.
1) Plan Customer Project
The planning of this service can be done through the Work Package Type “Service based
(Unit)”, which allows you to enter and plan one of the 10 pre-delivered U-materials. In the
example, the company provides tickets support for the customer therefore the type “UBB-
Service Center” (U002) is selected.

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The unit of measurement is derived out if the master data of the activity type and can be
changed according to your needs (App: “Manage Activity Types” with business role "Cost
Accountant - Overhead" – technically SAP_BR_OVERHEAD_ACCOUNTANT). In the same
way you can also adapt the name and description of the activity type.

Within this service-based work package, the cost and revenue planning are separated:

· The revenue is planned on top level of the work package through the service
quantity, which will be billed to the customer.
· The cost is planned (similar to resource based work packages) on role level
through the different time-related resources, which are automatically non-
billable and therefore written off automatically and not billed to the customer.

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Revenue planning

Cost planning

This separation of cost and revenue planning is of particular importance for the usage-based
billing in comparison to the resource-based work packages:

There is no resource assignment for the usage-based billing service, but certainly for the cost
planning through time-related roles. As a result, a consultant working one hour more a less
will result in difference costs on the project, but the billable revenue (e.g. agreed amount of
service center tickets) will remain the same.

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In the tab “Billing” you maintain the billing plan for your project. When you select the contract
type Usage Based, the default material is P004 (if existent) or P002.

In the “Billing Plan Definition”, you schedule the detailed billing plan.

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2) Enter Activity Allocation in Usage-Based Billing Projects

The cost postings will result out of the time recordings of the planned time-related
roles/resources within the work package. The quantity of the usages is captured via the app
“Enter Activity Allocation”. For the usage-based billing materials, pricing and DIP settings
follow the same logic as the T- materials / T-activity types.
You can use the app “Set Service Prices” to maintain the service prices of the 10 usage-
based billing materials. In the example, to process 10 service center tickets, the company
would charge 6 EUR per piece.

In the app “Manage Cost Rates - Professional Services” you can maintain the cost rate of the
usage-based billing materials. In the following example, a cost rate of 0 is maintained as the
costs are purely arise out of the time-related time recordings of the planned roles/resources.

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In the execution phase, 10 tickets are processed for the project during 1 hour of consultant
work. The consultant records this 1 hour through his Timesheet resulting the costs of 25
euro. In the app “Enter Activity Allocation” the overhead accountant can post the activity on
the customer project.

Alternatively, the API Create Allocation Posting can be used. In this way, the posting process
can be automated (e.g. through the external ticketing system). It is also possible to read all
time recordings through the existing API Manage Workforce Timesheet, convert them
accordingly in the applicable unit of measurement of the activity type and post these units
automatically.
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Upon posting the activity, Event-Based Revenue Recognition is triggered, and revenue is
realized in real-time for the posted quantities of the usage. The revenue recognition method
SPTM for Time & Expenses is applied for the usage-based billing contract. Please access
the app “Revenue Recognition (Event-Based)”:

Postings triggered by activity allocation:

Revenue posting triggered by event-based revenue recognition
Debit WIP Accrued Revenue (BS account) €60
Credit Revenue Adjustments (P&L account) €60
After drilling down to the item, you see the recognized revenue and costs for the posted units
of the usage: 10 service center tickets.

3) Billing/Invoice of 1 ticket usage

In the app “Release Billing Proposals” you see the billable amounts directly for the posted
units of the usage. In the example, you see the 6 EUR in the billing proposal for 1 service
ticket processed. A debit memo request is created when the billing proposal is released.

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In the app “Create Billing Documents” select the created debit memo request and bill out the
usage-based billing material. In the billing document below, you see the material “Service
Center Tickets” with the unit of measurement pieces is billed out.

With billing, event-based revenue recognition is triggered. The billed revenue is reposted to
deferred revenue.
Postings triggered by billing:
Revenue posting triggered by event-based revenue recognition
Debit Revenue Adjustments (P&L account) €60
Credit WIP Deferred Revenue (BS account) €60
In the app “Revenue Recognition (Event-Based) - Projects” you see the current posted value
in the revenue accounts.

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4) Period End Closing

The billing is carried out based on the usage. In the example, the usage is fully billed out.
Hence, after period-end closing in December where the accrued revenue account is netted
against the deferred revenue account, the resulting balance for both accounts is zero.
Postings triggered by period end closing:
Revenue posting triggered by event-based revenue recognition
DR WIP Deferred Revenue (BS account) €60
CR WIP Accrued Revenue (BS account) €60

To Check G/L Entries:

To check the journal entries created by period-end closing, go to the App “Display Line Items
in General Ledger”

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Journal Entry 100010312 is the accrued revenue posting triggered by the activity allocation.
Journal Entry 100010313 is the deferred revenue posting triggered by the posting of billing
document.
Journal Entry 100010316 is the netting between the accrued revenue account and deferred
revenue account by period end closing.

5. Foreign Currency Scenario

Principles of Revenue Recognition for FX scenario:
· Revenue recognition exchange rate: A fixed exchange rate is used throughout
the duration of the project for revenue recognition to avoid WIP currency
fluctuations. For revenue recognition, the system takes the exchange rate
at project creation date.
· Pricing exchange rate: DIP determines the right materials for the billable items
and calls for Debit Memo simulation, which reads Pricing from pricing app to
determine the right price and cost for these materials. Pricing takes the
exchange rate at month-end of service rendered date (i.e., date of time
confirmation).
· Validity of exchange rates: When you maintain exchange rate in the system,
these rates will be valid for a certain period until the next entry maintained:

If there is no exchange rate maintained specifically for month-end, the system will
take current valid rate. (And if there is nothing maintained at all, the system will
report errors.)
· FX differences: At Closing Period: the system posts FX differences in the
‘Revenue Adjustment’ income statement account.
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· FX clearing: When a project is set to ‘Completed’, the system clears the FX effects
on Global currency (the single currency defined in controlling area in the system).

Example FX scenario:
A German company sells IT consulting services. Details of the engagement are as
follows:
· It created a contract with a US-based customer for a S/4 HANA Implementation
project.
· It was agreed that the company will bill the customer based upon the time spent
by consultants to perform the work and for materials used in the project.
· The project is planned to be completed in 2 months and one consultant located
in Germany is assigned to it.
· In terms of the system business process, this means the company code
currency is Euro and the transaction currency is USD.

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Example of Effective Exchange Rates throughout the Process:

Before the project is created, the following conditions were stipulated in the system to
ensure the process flow:
S/4HANA Cloud offers the possibility to maintain different cost rates on the following
levels:
· Company Code
· Company Code to be billed (transfer prices for intercompany business)
· Cost Center of the employee
· Activity Type
· Service Cost Level
· Personal Number (cost rate on employee level possible!)
· Work Item
· WBS Element (Work package not Billing Item)
Example: As some groups of employees might have deviating cost rates, it is
possible to map them using the cost center as a key combination field. The cost
center attribute allows you to structure your cost rates according to the activities
done by the employee (e.g. on-premise consulting, cloud consulting…).
Personnel Number and Service Cost Level allow you to define even more specific
cost rates for employee dependent attributes. For example, can every employee
have a specific Service Cost Level which is maintained in the employee master
record. Adding this dimension to the cost rate determination, it is possible to maintain
different cost rates for two employees who do the same work (Consulting) and post
their time with the same activity type (T001 – Junior Consultant) but differ in their
Service Cost Level (Beginner vs. Intermediate Level).

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Maintain Cost Rates for Activity Types:

App: Maintain Cost Rates – Professional Services
Cost Rates are defined for activity types, which classify the activities that are to be
performed within a company by one or several cost centres. Examples of activity
types are T001 (Junior Consultant) or T002 (Senior Consultant) as in the Example
case.
Note : T-Materials and Activity types have a 1:1 relationship, so if you change
the description of a T-Material, you should do the same for the activity types.
From 1805, The app “Manage Cost Rates - Professional Services” introduces a new
cost rate table which contains all activity cost rates. The new cost rate table makes
no distinction between planned cost rates and actual cost rates. The same cost rates
are used for planning purposes and for actual postings. Definition of cost rates is
possible for cost centres, activity types, service cost levels or employees.

Maintain Exchange Rate:

In S/4 HANA Cloud, you can maintain several exchange rates for the same date but
for different purposes by defining them as exchange rate types. SAP Best Practices
deliver 2 exchange rate types as follows:
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· Exchange rate type M - used for standard translation at average rate.

Exchange rates with type M are current and historic rates are updated
automatically in the system.

Exchange rates with exchange rate type M are maintained in the app “Maintain
Exchange Rate”:

· Exchange rate type P - used for standard translation for cost planning. For
planning purpose, you can maintain the forecast exchange rates with type P
and use them to translate planning values.

Exchange rates with exchange rate type P are maintained in the app “Maintain
Exchange Rate”:

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Default Exchange Rates Types Used:

· Event-Based Revenue Recognition uses exchange rate type M for actual
valuation.
· The exchange rate type maintained in the planned category for the baseline
plan of a customer project is preconfigured as exchange rate type P. Hence,
the system uses exchange rate type P for the baseline plan of a customer
project.

On 03.05.2018 the project manager creates a customer project in S/4HAHA Cloud

with the Project start date on 01.05.2018.
Exchange Rate on Project Creation date: 1.1 USD : 1.0 EUR

In the initial phase of planning, a work package is created for the customer project
and one senior consultant is assigned to this work package. The system simulates
the planned cost and planned revenue based on the cost rate and standard service
price stored for the consultant.

Since the transaction currency is USD, the system automatically converted the
planned cost and planned revenue of the Senior consultant from EUR to USD using
the exchange rate maintained for exchange rate type P. If there are multiple rates
maintained for one period, the system takes the rate of the first day of the period to translate
planned values. In the example, the exchange rate maintained for exchange rate type P is:
1EUR=1.2379 USD.
Planned cost: 65EUR/h x 10h = 650 EUR
650 EUR × 1.2379 USD/EUR = 804.70 USD.
Planned revenue: 200EUR/h x 10h =2000 EUR
2000 EUR × 1.2379 USD/EUR = 2475.90USD.

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a. Time Confirmation
On May 4th the consultant has recorded one hour in his timesheet.
Select the App “G/L account line items-reporting view” to check the journal entries
created by time confirmation.
Revenue Recognition calculation
Journal Entry 100015598 is the Event Based Revenue Recognition posting for
time recording:
Debit WIP Accrued Revenue 272.73 EUR
Credit Revenue Adjustment 272.73 EUR

In project setup, the service price of senior consultant is 200 EUR/h. As the
transaction currency of the customer project is USD, the service price is translated
from sales price 200 EUR/h to 300 USD/h with the date of time recording (which in
this case May 4th ). The Exchange rate used is the rate of the last day of the service-
rendered period (which is May 31st). If no exchange rate is maintained for end of
May, the system will take the current valid exchange date maintained.

Service price of senior consultant in Transaction Currency:

200 EUR/h × 1.5USD/EUR = 300 USD/h
Amount of recognized revenue in Transaction Currency is calculated with Sales price
in Transaction Currency.
Amount of recognized revenue in transaction currency:
300 USD/h × 1h = 300 USD
Amount of recognized revenue in Company Code currency is translated with the
exchange rate on the creation date of the customer project. In this example, the
creation day of the customer project is May 3rd.
Amount of recognized revenue in Company Code currency:
300 USD ÷ 1.1 USD/EUR = 272.73 EUR
Cost calculation
In the reporting view with the filter “Project definition”, you also see the one-side
journal entry for the CO posting for the time confirmation.
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Journal Entry 2300002122 is the CO posting posted on the customer project.

The complete posting is as below.
Debit Activity Allocation - Project €65 (+1 hours)
Credit Activity Allocation -Cost Center €65 (-1 hours)
Transaction currency for time postings is determined based on the cost rate defined
for service delivering unit. As the consultant assigned to the customer project is from
service organization DE, the transaction currency for the CO posting of time
confirmation is EUR.
In the App “Revenue Recognition (Event Based)-Sales orders” you can see the
recognized revenue after time recording is 272.73 EUR and the recognized cost is 65
EUR.

b. Expense postings
The consultant makes some expenses while travelling to the customer site. On May
5th, $100 are posted as travel expenses in the supplier invoice on the customer
project.
Select the App “G/L account line items-reporting view” to check the journal entries
created by expenses posting.

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Revenue Recognition calculation

Journal Entry 100015603 is the Event Based Revenue Recognition posting for
expenses posting:
Debit WIP Accrued Revenue 90.91 EUR
Credit Revenue Adjustment 90.91 EUR
100 USD travel expenses are spent by the consultant to render the service, there
these expenses can be billed to the customer and generate corresponding revenue.
Amount of recognized revenue in Transaction Currency is 100 USD
Event Based Revenue Recognition uses the exchange rate of the creation date of
the customer project to translate Transaction Currency to Company Code Currency.
Amount of recognized revenue in Company Code Currency:
100 USD ÷ 1.1 USD/EUR = 90.91 EUR
Cost Calculation
In the reporting view with the filter “Project definition”, you also see the one-side
journal entry for the CO posting for the time confirmation.
Journal Entry 2300002130 is the CO posting posted on the customer project.
The complete posting is as below.
Debit Travel Expense (Cost Center) 76.92 EUR
Credit Travel Expense (Project) 76.92 EUR
Transaction currency for expense postings is determined based on the travel
expenses/ supplier invoice. In the example, currency of the supplier invoice is USD.
Amount of recognized Costs in Transaction Currency is 100 USD.
For cost postings, translation is using exchange rate of the posting date. In this
example, exchange rate of May 5th is used.
Amount of recognized Costs in Company Code Currency:
100 USD ÷ 1.3 USD/EUR = 76.92 EUR
In the App “Revenue Recognition (Event Based)-Sales orders” you can see the
updated amount of recognized revenue recognized cost after expense posting.
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Recognized Revenue = 272.73 + 90.91 = 363.64 EUR

Recognized Cost = 65 + 76.92 = 141. 92 EUR

c. Billing
On May 6th, an invoice is created for the work that the consultant has performed so
far. The exchange rate of posing date is used to convert USD to EUR.

With billing, Event Based Revenue Recognition reposts the amount billed to deferred
revenue.

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Go to the App “G/L Account Line Items-Reporting View” to check the journal entries
created at time of billing.

Billed amount calculation

Journal Entry 9400000730 is the FI document of the invoice. Here you see only one
side posting as the filter “project definition” is selected. The complete journal entry is:
Debit Account Receivable 285.72 EUR
Credit Billed Revenue Foreign 285.72 EUR
As the customer is a foreign customer, “Billed Revenue Foreign” account is used for
posting. The amount billed in Transaction Currency is 400 USD. It is translated with
the exchange rate of the posting date, therefore the amount billed in Company Code
Currency is 285.71 EUR:
400 USD ÷ 1.4 EUR/USD = 285.71 EUR
Revenue Recognition Calculation
Journal Entry 100005070 is the Event Based revenue recognition posting for billing.
Debit Revenue Adjustment 285.72 EUR
Credit Deferred revenue 285.72 EUR
Event Based Revenue Recognition reposts the amount billed to deferred revenue.
Amount reposted to deferred revenue in Transaction Currency is 400 USD.
Amount reposted to deferred revenue in Company Code Currency is 285.72 EUR.
In the App “Revenue Recognition (Event-Based)-Projects” you see the updated
values in Balance sheet and income statement by billing.

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d. Period End Runs

At end of May, the project manager runs the period end closing for his customer
projects.
In the App “G/L Account Line Items- Reporting View” you see the journal entry
(100005071) created by Event Based Revenue Recognition at period end.

As in the example all work performed has been billed, there should be no remaining
balance on accrued revenue and deferred revenue. The accrued revenue and
deferred revenue are netted completely against each other.
In Transaction Currency:
Debit Deferred Revenue 400 USD
Credit Accrued Revenue 400 USD
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In Company Code Currency:

Debit Deferred Revenue 285.72EUR
Revenue Adjustment 77.92EUR
Credit Accrued Revenue 363.84 EUR
At time recording and expense posting, Event Based Revenue Recognition has
posted 363.84 EUR to accrued revenue with the exchange rate of the creation day of
the customer project (May 3rd : 1 EUR = 1.1 USD). At billing, Event Based Revenue
Recognition has posted 285.72 EUR to deferred revenue, which is translated with the
exchange rate of invoicing day (May 6th : 1 EUR = 1.4 USD). Due to the difference in
exchange rates, there is a difference of accrued revenue and deferred revenue, and
system uses revenue adjustment account to adjust the difference. At period end,
there is no balance remaining on both accounts as you see in the below screen shot.

T-account view after period-end closing:

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Journal entries created till period end run:

In case there is any impact on Global currency (the single currency defined in
controlling area in the system), this will be cleared when the project is set to
‘Completed’ and period-end closing is run.

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