Cancellation effects on account balances

Contract schedules are:

  • Billing and revenue schedules: associated with contract lines. Although billing and revenue schedules might not be concurrent, they are canceled together.
  • Expense schedules: associated with the contract and/or contract lines. You can cancel expense schedules separately from billing and revenue schedules.

You can cancel "In progress" contract schedules at any time during the contract term. You cannot cancel a completed contract schedule.

Cancellation effects on revenue account balances

For billing and revenue schedules, Sage Intacct will do the following with outstanding balances:

Account Cancellation effect Balance after cancellation If balance is different
Unbilled AR Credits any balance.

0.

A balance other than 0 indicates there are one or more periods of open billing scheduled prior to the cancellation date. This balance should be 0 after all open billing is invoiced.
Unbilled Sales Revenue Debits any balance.

0.

A balance other than 0 indicates there are one or more periods of open billing scheduled prior to the cancellation date. This balance should be 0 after all open billing is invoiced.
Unbilled Deferred Revenue

Intacct creates a journal entry that does the following:

  • Debits Unbilled Deferred Revenue
  • Credits Unbilled AR

This fully reverses any balance so that Unbilled Deferred Revenue will net to zero.

0.

 A balance other than 0 indicates there are one or more periods of open billing scheduled prior to the cancellation date. This balance should be 0 after all open billing is invoiced.
Billed Sales Revenue Intacct never changes this balance. Can be greater than 0.  
Billed Deferred Revenue

Intacct will do one of the following, depending on whether or not you select to create an AR adjustment during the cancel:

  • If you do not select the Create adjustment option during cancel, Intacct leaves the balance open on the revenue schedule so that it is available to be recognized.
  • If you select the Create adjustment option during cancel, Intacct creates an AR adjustment of type = Credit Memo and automatically applies it to the contract invoice. The adjustment does the following:
    • Debits Billed Deferred Revenue
    • Credits Billed AR

    However, if you are using two revenue journals and the Billed Deferred Revenue balance is different in journal 1 and journal 2, then Intacct will not create an AR adjustment even if you selected that option during cancel. Intacct leaves the balance open on both schedules so that it is available to be recognized.

0.

A balance other than 0 indicates that there are one or more periods of open revenue scheduled prior to the cancellation date. This balance should be 0 after all open revenue is recognized.
Paid Sales Revenue Intacct never changes this balance. Can be greater than 0.  
Paid Deferred Revenue Intacct leaves this balance open on the revenue schedule so that it is available to be recognized.

0.

A balance other than 0 indicates that there are one or more periods of open revenue scheduled prior to the cancellation date. This balance should be 0 after all open revenue is recognized.

Cancellation effects on expense account balances

Intacct follows the following cancellation rules for outstanding expense balances:

Account Cancellation effect
Deferred Expense Credits any balance.
Recognized Expense Recognition is stopped as of cancellation date. The best practice is to post any open recognition before canceling the contract line using a posting date that precedes the cancellation date.
Expense Accrual Debits any balance.

Cancellation effects on Software Digital Board Book accounts

The following table describes how cancellation affects Software Digital Board Book accounts. For more information, see How the Software Digital Board Book tracks MRR.

Cancellation event condition DBB account affected Posting date
Cancel one or more MRR contract lines, but other contract lines for the customer are still in progress (in any contract) MRR amount for canceled lines is posted to the Downgrade account Date specified as Cancellation date
Cancel all MRR contract lines for all contracts associated with the customer

MRR amount for all contract lines is posted to the Churn MRR account

 Date specified as Cancellation date for last canceled contract line
Cancel last MRR contract line for all contracts associated with the customer

-1 is posted to the statistical Customer account

 Date specified as Cancellation date for last canceled contract line

Example of canceled contract schedules for a termed contract

Say your company sold a subscription for advertising services for a monthly charge of $200.00 for a term of 6 months. The contract started on August 1. You bill the customer and recognize revenue at the end of the month for the service.

On November 15, the customer decides to cancel the contract. According to your business process, you will charge the customer a prorated amount for service from November 1 through November 14.

You manually calculate the prorated billing amount for November to be 93.34. In the billing schedule, you edit the November row and schedule 93.34 to bill on November 14. You edit the December row to add the remainder of the November amount to the December amount (106.66 + 200.00). Finally, you cancel the contract line effective November 15.

The billing schedule appears as follows:

 

Intacct leaves the 93.34 open for invoicing.

The revenue schedule appears as follows:

 

As only 600.00 had been recognized, Intacct automatically left the Billed Deferred Revenue balance of 93.34 available to recognize and scheduled it with a posting date of one day prior to the cancellation date.

When the total revenue posted or scheduled to post prior to the cancellation date does not equal the total amount billed, Intacct will split the next scheduled period's revenue into two periods:

  • One period with Open status with a Scheduled posting date of the Cancellation date minus 1 for the amount needed to make revenue equal to billing.
  • One period with Terminated status with its previously Scheduled posting date for the remaining revenue amount.

Now say that before you cancel the contract, you know the customer will not pay for the service dated Nov 1 - 14 due to service issues. Depending on your business process for invoices that will never be paid, you could select to create an AR adjustment on cancellation. Then Intacct would create a credit memo that debits the 93.34 from the Billed Deferred Revenue account and credits the Billed AR account. The revenue schedule in our example would show all entries from November on as terminated.