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 Journals
Sequence will generate system journals automatically as a response to billing and invoicing activities taken place within Sequence.
Each line item on a finalized invoice will generate a journal in Sequence with two entries. The first, would be to debit the Billed Revenue account with the value of the net amount.
The second entry would be for the same amount, but may be credited to either Recognized Revenue or Deferred Revenue accounts based on the following rules:
| Line Item Classification | Credited Account |
|---|---|
| Fixed, in-advance charge | Deferred Revenue |
| Fixed, in-arrears charge | Recognized Revenue |
| Usage-based charge | Recognized Revenue |
| Credit grant | Deferred Revenue |
| Credit usage | Recognized Revenue |
On a daily basis, Sequence will generate a journal recognizing each product that was billed in advance, capturing the revenue that was earned on that day. This journal will debit Deferred Revenue and credit Recognized Revenue ledger accounts.
One-off charges and minimum true-ups are recognized at the time of invoicing, unless otherwise specified by the user. Similarly, revenue from expiring credits is recognized at the time of expiry.
Discounts are booked to the same ledger account of the original charge, but with a positive value and a flipped direction.
Handling corrections
Sequence would automatically generate Journals to handle corrections elsewhere in the system. For example, when a Credit Note is issued, Sequence would generate a partial or full reversing journal against the journals initially posted when the initial invoice was generated.
Changes to pricing, such as upgrades, downgrades or cancellations, would trigger invoices and credit notes, which in turn would generate invoices once finalized.