Revenue Recognition - Jumping months in Straight Line Rev Rec.

In my recent project i had to work a lot on the straight line rev rec functionality in detail and had to test many different scenarios. This gave me more insight into what is system capable of doing and what the system is not capable of doing with respect to recognizing revenue in a straight line scenario.

Straight line revenue recognition will always recognize revenue (approx.) equal revenue per month if the estimation is done each month. However there are many scenarios which needs to be thought into, like:

• What happens if the user forgets to estimate the first month and directly runs the estimation in the second or the third month (for e.g. - Actual start date : 1st Jan 2018 and Actual end date : 31st Dec 2018 and estimation posted for directly for March 2018) or 
• What happens if the user jump months suddenly in between and runs the estimation for a month missing a few ones in between (for e.g. - Actual start date : 1st Jan 2018 and Actual end date : 31st Dec 2018 and estimation posted for sequentially from Jan 2018 till March 2018 and then user forgets the estimation for April 2018 and May 2018 and then runs estimation for June 2018 directly)

Lets see below how the system reacts to the above two scenarios.

Estimation directly for any month other than the first month

In the example below, the 'Actual start date' and 'Actual end date' is 1st Jan 2018 and 31st Dec 2018 respectively.

Actual start and end date

No estimates are posted for Jan 2018 and Feb 2018 and directly user is trying to post estimate for March 2018.

Estimation for March 2018

System creates the estimate for March directly, with the correct percentage to recognize till March 2018.

Revenue recognized till date = (12000 / 365) * 90 = 2958.90

Percentage complete = (2958.90 / 12000) *100 = 24.66

Revenue value and percentage for March 2018

System allows the user to estimate directly for any other month for the first estimate, the way it allowed for in the above example. But are we allowed to skip months in between after the first estimate, lets see in the next section below.

Skipping few months in between and then estimating  

In the example below, the 'Actual start date' and 'Actual end date' is 1st Jan 2018 and 31st Dec 2018 respectively.

Actual start and end date

Estimation done and posted successfully for first three months .i.e. for Jan, Feb and March.

Estimation for Jan, Feb and March

Now if i try to create an estimate for June 2018;

Estimation for June 2018 NOT CREATED

Ideally it is expected that system should either calculate the estimate OR if not possible system should display an error message. But system does nothing other than closing the 'Create estimate' screen. This means that system does not allow the user to skip months and then estimate for some other month without estimating the missing months.

Though this is correct from a business perspective but system should have displayed an error message instead of just displaying nothing and doing nothing. 

So in a scenario if the user has forgotten to estimate for some months and now is trying to estimate for the current month, system expects the user to first complete the previous estimations before running the estimate for the current month.

Estimation for June 2018 CREATED

So in conclusion:

• if the user has started his estimation from the first month, he/she is not permitted to skip months in between. 
• if user has missed the estimation for the first few months, then for the first estimate, system permits to skip months but not thereafter.

Hope this helped get more insight into the system behavior for straight line revenue recognition scenarios.

Thanks

Kind Regards
Sarang