Full lesson
Explore the full explanation, examples, and visuals at your own pace.
Part 1
RMCS turns order lines into recognized revenue. Source lines become a contract, the price gets allocated, obligations are satisfied, revenue is recognized, and it all flows to the general ledger, following ASC 606 and IFRS 15. We'll follow one example: Acme's $100,000 bundle from Order Management.
Step 1: lines become a contract
The Acme order arrives from Order Management as two lines, the license and the support. RMCS imports and validates them first. Then contract identification rules, like same customer and same order, group both lines into one customer contract. That contract becomes the container everything else in RMCS builds on.
Step 2: one contract, two promises
Once the Acme order is identified as one customer contract, RMCS breaks it into performance obligations. A performance obligation is a distinct promise to the customer. Here, the license is one promise and the support is another, because each one earns revenue at a different time.
Step 3: allocate $100,000 by SSP
The standalone prices add up to $120,000, but Acme only pays $100,000. So RMCS spreads that discount proportionally. The license gets ninety twelfths of the price, which is $75,000. Support gets thirty twelfths, or $25,000. Both bars shrink by the same ratio.
Chart values
| Obligation | USD |
|---|---|
| License SSP | 90000 |
| License alloc | 75000 |
| Support SSP | 30000 |
| Support alloc | 25000 |
Step 4: how each promise is satisfied
Now RMCS needs to know when each promise is actually kept. The license obligation is satisfied at a point in time, on delivery. The support obligation is satisfied ratably over twelve months, so its $25,000 is spread evenly, about $2,083 a month, following a ratable satisfaction plan.
Revenue follows delivery, not the invoice
Cumulative revenue jumps to $77,083.33 in month 1, then climbs steadily to $100,000 by month 12. Acme was invoiced the full $100,000 upfront, but that didn't move the line. Revenue follows satisfied promises: the license at delivery, then support month by month.
Chart values
| Contract month | USD |
|---|---|
| Month 1 | 77083.33 |
| Month 4 | 83333.33 |
| Month 7 | 89583.33 |
| Month 12 | 100000 |
Step 5: billing and accounting
Receivables sends the billing data to RMCS. Acme was billed $100,000 upfront, so that creates a contract liability. As revenue events go to Subledger Accounting, journals post to the General Ledger, and the liability shrinks each month. Balances come back updated. Exact process names may vary by release.
Same path for every contract
RMCS is an assembly line, from order lines to booked revenue. Acme's bundle went in as source lines, became one contract, got its $100,000 allocated, was satisfied, recognized, and posted to the general ledger. Every contract follows that path, though the rules and standalone selling prices come from your setup.