Chapter 5: Revenue Recognition
Learn about Chapter 5: Revenue Recognition from PPM Guide
Revenue recognition is based on accrual accounting in accordance with Generally Accepted Accounting Principles (GAAP). Revenue is recognized when earned, and expenses are recognized when incurred. Revenue is considered earned when the university has substantially met its obligation to be entitled to the benefits represented by the revenue. Revenue is recorded when earned, regardless of the timing of cash receipts. In other words, revenue does not equal cash received. In the event a project stipulates performance measures, revenue is considered earned when the performance measures are completed.
In Oracle, revenue scheduling rules determine the number of periods and the percentage of total revenue to record in each accounting period. Invoicing rules determine when to recognize the receivable for invoices that span more than one accounting period.
See Sponsored Project Billing and PPM Project Billing for additional information on how PPM recognizes revenue.
5.1.1: Unearned Revenue
5.1.1: Unearned Revenue
Unearned Revenue is money received by UC San Diego in advance of having provided the services or goods. An example of this is a pre-payment. Unearned revenues are not yet revenues and therefore cannot be reported on the income statement. Instead, the unearned revenue amount must be reported on the balance sheet as a liability.
Example: UC San Diego engages in a consulting agreement for $60,000. The terms require a payment of $15,000 at the time the contract is signed, and $45,000 at the end of the project. The first $15,000 will be booked to unearned revenue and as revenue is earned based on completion of the work, revenue gets recognized (dr. unearned revenue, cr. Revenue).
Option only available in the Receivables Module - Use “deferred revenue scheduling rules” only for invoices that are assigned the In Advance invoicing rule. If you use a deferred revenue scheduling rule with a single accounting period, Receivables recognizes the revenue in the period specified. If the deferred scheduling rule is used with multiple accounting periods. Receivables creates the revenue recognition schedule based on the rule, and the start date is determined by the accounting start date provided. If the accounting start date occurs in a closed accounting period, Receivables posts that portion of revenue into the subsequent open accounting period.
Unearned revenue for project billing is something that the Accounts Receivable office in collaboration with the project team will continue to explore. This guide will be updated when more information is available.
Find answers, request services, or get help from our team at the UC San Diego Services & Support portal.