Octane provides all of the information necessary to accurately compute accrual-based revenue recognition in accordance with ASC 606 accounting standards. This includes:
- Invoice details including generation date, issue date, subtotal, and amount due
- Invoice line items with service periods and price
- Credit grants with amount and price to determine cost-basis
- Credit ledger with amounts used and date of drawdown
Octane also provides revenue recognition computations by customer and month. Octane computes deferred revenue as booked revenue minus recognized revenue.
deferred revenue = booked revenue - recognized revenue
Booked revenue is simply the invoice amounts at the time the invoices are generated. In other words, the sum of line item on an invoice is considered booked revenue at the time the invoice is generated in Octane.
Invoice for $100 generated on 06/01/2023 ⇒ $100 booked revenue on 06/2023
Recognized revenue is a bit more involved as it depends on a few factors:
Flat fee items such as base fees and add-ons are recognized using straight-line method. The price is divided equally amongst all of the months in the service period.
Metered component items are recognized at the end of their service period.
Credit grant line items are are recognized as the credits are drawn down. Credit drawdown items are recognized similar to flat fee and metered component items, but since they have negative prices they offset the other line items.
We must also take into account the Credit Ledger in the revenue recognition computation. When credits are drawn down, we recognize the amount of credits used multiplied by their cost-basis.