Event Based Revenue Recognition - Sell from Stock (with POD)

[Medline]

Dear SAP Community,

We are reimplementing SAP S/4HANA 2023 (FPS 03) version, for event based revenue recognition (Sell from Stock scenario), to comply with the ASC 606/IFRS 15 Revenue Recognition requirements.

As Is Process:

Presently, for “Sell from Stock” scenario, we post PGI and billing on the same day to book the COGS and revenue in the same period.

This works in a normal scenario but in case of cut-off during month end processing, this process has limitations/constraints as described below:

Suppose there is a month end on Feb 28, 2025 and there are goods which have been delivered/shipped (PGI done) and billed (both on same day) on Feb 27, 2025.

Now, the goods are received by the customer on Mar 2, 2025 and not on Feb 28, 2025 which is the last day of period 2.

As per ASC 606, revenue should only be recognized once the goods have been physically delivered to the customer and there is a complete transfer of control over the goods from the seller to the customer.

In the above case, transfer of control is completed on Mar 2, 2025 but the COGS and revenue have already been booked in the earlier period (Period 2) which is not correct.

Ideally, revenue should be recognized on the physical delivery to the customer and COGS should be booked in the same period as revenue, to comply with the matching concept.

As a workaround, users now monitor the shipment to check when the goods are being received by the customer. If the physical delivery is in the next period as in the above example, Business is posting the adjustment in the earlier period (P2) to adjust the revenue and COGS and reverse the same on the first day of the next period (P3 in this case).

This is fine for month end processing, but revenue still remains in the earlier period (P2) after reversal of adjustment entries which doesn’t comply with ASC 606.

To Be Process:

We are looking for a solution based on “Event Based Revenue Recognition – Sell from stock” (with POD may be) which can take care of revenue recognition compliance with ASC 606.

We have explored this solution, and it looks like this could be used to resolve our revenue recognition issues.

We are expecting the below flow and postings at each event so that we can comply with the ASC 606 and e-invoicing requirements of LATAM countries:

PGI --> Billing (EBRR) --> POD

Event	GL Account	Dr/Cr
PGI	Deferred COGS (Bal sheet GL)	Dr
	Stock	Cr
Billing	AR	Dr
	Unbilled revenue	Cr
POD	COGS	Dr
	Deferred COGS	Cr
	Unbilled revenue	Dr
	Revenue	Cr

There is another possible flow as below:

PGI -->  POD --> Billing (EBRR)

But as we have statutory requirement to generate e-invoice along with PGI itself because of which we can’t wait for billing until POD.

Impact on Actual Costing:

Another thing that we need to clarify is the impact of this setup on actual costing.

Right now, we have actual costing activated for all the company codes and we do actual costing revaluation as a part of month end process (CKMLCP) and also release the prices (CKME).

So, the COGS and inventory are revalued every month based on PUP.

The current setup for COGS revaluation is as below:

440700 - INVENTORY REVALUATION

However, we are not using regular COGS GL here in COC but it is a separate GL for inventory revaluation.

With EBRR activated as above, would there be any impact on actual costing setup as regular COGS will be hitting after POD confirmation and maybe in the next period in many cases?

Can you please clarify on the below questions:

1. Can we use scope item 1K2 (EBRR – Sell from stock scenario) with POD confirmation to meet our requirement to comply with ASC 606?
2. What will be its impact on actual costing revaluation as regular COGS will be hitting after POD confirmation?