Rental Accruals and Revenue Recognition

As tougher financial regulations have been brought in over the last few years it has become a matter of necessity for many rental companies to review the way that they handle revenue recognition. This is particularly important for companies who already charge their customers in advance, or are considering doing so in the future, and those who charge their customers according to contract billing anniversaries rather than at month end.

rentalresult provides 2 key features to assist in revenue recognition; rental revenue straddling and Rental revenue accruals. The former is for customers charging in advance and the latter for customers charging according to billing anniversaries.

Revenue straddling allows a company to bill in advance, secure in the knowledge that all revenues will be recognized on a pro-rata basis month by month. In other words, if you bill from 15th January to 14th February, part of the invoice will be recognized immediately in January, the rest will be posted as future revenue and recognized correctly in February. The software can recognize revenue up to 10 years into the future if appropriate.

Rental revenue accruals allow a company billing in arrears to create automatic accruals at the end of each financial period for any un-billed revenues. So again, a customer who begins a rental on the 15th January and will not be billed until 14th February will have an accrual raised for the revenue that has been earned in January. This will be automatically reversed when the invoices are raised in February.

Rental accruals can be run manually at any point during the course of a month without being posted to the general ledger. This means that they can be used for measuring current performance against target based on the relevant estimated off-rent dates from contracts.