Methodology
Sequence’s usage data ingestion and billing engine automatically track all the information required to recognize revenue you earn, in accordance with ASC 606 and IFRS 15, on a daily basis.
This lets you answer granular questions about your revenue, such as “how much revenue was generated by this product today?”
Sequence Ledger
To achieve this, Sequence implements a double-entry revenue subledger that records all revenue-impacting activities in near-real time. By default, it includes 4 ledger accounts:
| Ledger account | Type | Description |
|---|---|---|
| Recognized Revenue | Credit | Recognized revenue, i.e. the revenue earned by delivering services to customers |
| Unbilled Revenue | Debit | Subset of revenue not yet invoiced. For example, revenue derived from usage-based products which will be billed in-arrears |
| Billed Revenue | Debit | Invoiced amount, excluding tax |
| Deferred Revenue | Credit | Subset of invoiced amount not yet earned. For example, in-advance yearly charges for services that will be delivered throughout the year |
Sequence System Journals
Sequence will generate system journals automatically as a response to billing and invoicing activities taken place within Sequence. Each line item in an issue invoice will generate one or more journals, depending on the attributes of the charge.
In-arrears charges
In arrears charges create two journals: The first journal recognizes revenue during the period in which services were delivered, which is usually in the past, and the second journal shifts the balance of the invoice from unbilled revenue to billed revenue account, on the accounting date
| Journal Number | Date | Debited account | Credited account |
|---|---|---|---|
| 1 | Last day of service period | Unbilled Revenue | Recognized Revenue |
| 2 | Accounting date | Billed Revenue | Unbilled Revenue |
In-advance charges
In advance charges create a single journal to defer the billed revenue on the configured accounting date
| Journal Number | Date | Debited account | Credited account |
|---|---|---|---|
| 1 | Accounting date | Billed Revenue | Deferred revenue |
- Note: if service period is missing from a charge (e.g. manually issued invoices) then revenue will be recognized immediately on the accounting date.
- Accounting date is the date assigned to the invoice for accounting purposes (e.g. ERP integration), and can be configured to be the billing date, invoice issue date or last day of the billing period
Straight-line revenue recognition
Once deferred, Sequence would automatically track the revenue earned over time, and recognize it in equal amounts over the service period. This is known as straight-line revenue recognition. On a daily basis, Sequence would post a journal to recognize the revenue earned on that day, and shift the balance from deferred revenue to recognized revenue.
| Amount | Debited account | Credited account |
|---|---|---|
| Daily rate | Deferred Revenue | Recognized revenue |
User-driven recognition
Sometimes revenue can only be recognized when certain activities take place outside the billing system. For instance, the deferred revenue could be for Professional Services such as building a mobile app, and revenue can only be recognized once the app is delivered, or UAT signed-off. In these cases, the Product’s recognition method should be set to Milestone.
This instructs Sequence to only post a deferring Journal, and rely on individuals to recognize the revenue when the milestone is achieved.