> ## Documentation Index
> Fetch the complete documentation index at: https://docs2.zenskar.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Revenue distribution methods

When payments are received upfront, they are held as a liability known as **deferred revenue**. Distribution methods are the **rulesets** that systematically convert that deferred balance into recognized revenue based on time, usage, or entitlement consumption. This ensures compliance with ASC 606 and IFRS 15 performance obligations.

***

## The ASC 606 / IFRS 15 framework

Revenue recognition under ASC 606 and IFRS 15 requires a specific five-step model. Zenskar’s distribution methods directly execute **Step 5** of this framework.

1. **Identify the contract:** Verify an enforceable agreement exists.
2. **Identify performance obligations:** Define distinct goods or services (e.g., time, usage limits, credit balances, feature delivery, milestones).
3. **Determine the transaction price:** Establish the fixed, variable, or estimated cost.
4. **Allocate the transaction price:** Assign monetary value to each distinct obligation.
5. **Recognize revenue:** Trigger recognition when obligations are satisfied (over time or at specific events).

***

## Method selection matrix

Select a distribution method based on the contract type, required precision, and performance obligations.

| Method                                                 | Best For                   | Precision | Complexity | Compliance Note                                                |
| :----------------------------------------------------- | :------------------------- | :-------- | :--------- | :------------------------------------------------------------- |
| **Equally by days**                                    | Fixed-term contracts       | High      | Medium     | Most precise time-based allocation.                            |
| **Equally by month**                                   | Simple subscriptions       | Medium    | Low        | Acceptable when day-to-day variance is immaterial.             |
| **Configurable days monthly**                          | Fixed-term contracts       | High      | Medium     | Accounts for exact days in a billing month.                    |
| **Usage based**                                        | Consumption models         | Variable  | Medium     | Requires robust, accurate usage tracking.                      |
| **Entitlement based**                                  | Credit/milestone contracts | High      | High       | Requires strict contract-defined expiry and consumption rules. |
| **Aggregate based**                                    | Ramp-up/variable usage     | High      | High       | Strong alignment with proportional performance delivery.       |
| **Equally by months with estimated transaction price** | Variable consideration     | Medium    | High       | Requires rigorous constraint analysis and true-ups.            |

***

## Method definitions and examples

### 1. Equally by days

Revenue is spread based on the exact number of active service days within a given calendar month.

**Example:** A 3-month contract for \$3,000 running from January 15 to April 14.

| Month | Service Days | Revenue Recognized |
| :---- | :----------- | :----------------- |
| Jan   | 17           | \$548.39           |
| Feb   | 29           | \$935.48           |
| Mar   | 31           | \$1,000.00         |
| Apr   | 14           | \$516.13           |

***

### 2. Equally by month

Revenue is spread evenly across the total number of months in the contract term, ignoring the varying lengths of individual months.

**Example:** A 3-month contract for \$3,000.

| Month | Revenue Recognized |
| :---- | :----------------- |
| Jan   | \$1,000.00         |
| Feb   | \$1,000.00         |
| Mar   | \$1,000.00         |

***

### 3. Configurable days monthly

Similar to "Equally by month," but introduces precision by calculating a daily baseline rate and multiplying it by the total days in that specific month. Longer months recognize proportionally higher revenue.

**Example:** A 1-year contract for $36,500 ($100/day baseline).

| Month | Days in Month | Revenue Recognized |
| :---- | :------------ | :----------------- |
| Jan   | 31            | \$3,100.00         |
| Feb   | 28            | \$2,800.00         |
| Mar   | 31            | \$3,100.00         |
| Apr   | 30            | \$3,000.00         |

***

### 4. Usage based

Revenue is strictly tied to actual metered consumption during the period.

**Example:** \$10 per active seat per month.

| Month | Seats Used | Revenue Recognized |
| :---- | :--------- | :----------------- |
| Jan   | 50         | \$500.00           |
| Feb   | 40         | \$400.00           |
| Mar   | 60         | \$600.00           |

***

### 5. Entitlement based

Revenue is deferred at the time of purchase and recognized only when upfront value (credits, free units, feature access) is either consumed, delivered, or reaches expiration.

**Example A: Credit bundle lifecycle**
A customer prepays \$19,000 on January 1 for 19,000 credits, valid for 12 months.

| Date   | Trigger Event           | Credit Balance | Revenue Recognized |
| :----- | :---------------------- | :------------- | :----------------- |
| Jan 1  | Invoice paid            | 19,000         | \$0 (Deferred)     |
| Feb 15 | 1,489 credits consumed  | 17,511         | \$1,489.00         |
| Apr 10 | 3,000 credits consumed  | 14,511         | \$3,000.00         |
| Sep 5  | 10,000 credits consumed | 4,511          | \$10,000.00        |
| Dec 31 | 4,511 credits expired   | 0              | \$4,511.00         |

**Example B: Feature releases**
Contract stipulates $1,200 for 12 features, recognized at $100 per feature release.

| Quarter | Features Delivered | Revenue Recognized |
| :------ | :----------------- | :----------------- |
| Q1      | 3                  | \$300.00           |
| Q2      | 3                  | \$300.00           |
| Q3      | 3                  | \$300.00           |
| Q4      | 3                  | \$300.00           |

**Example C: Prepaid credits with overdraw**
Customer prepays \$5,000 for 5,000 credits. Contract allows a 1,000 credit overdraw limit.

| Date   | Trigger Event                   | Credit Balance | Revenue Recognized |
| :----- | :------------------------------ | :------------- | :----------------- |
| Jan 1  | Invoice paid                    | 5,000          | \$0 (Deferred)     |
| Feb 15 | 2,000 credits consumed          | 3,000          | \$2,000.00         |
| Apr 20 | 4,000 credits consumed          | -1,000         | \$4,000.00         |
| May 1  | Account true-up (2,000 credits) | 1,000          | \$0 (Deferred)     |
| Dec 31 | 500 credits expired             | 0              | \$500.00           |

***

### 6. Aggregate-based (Weighted estimate)

Revenue is distributed based on the proportion of total expected activity delivered over a specific time frame.

**Calculation:**
`Revenue = (Period Activity ÷ Total Expected Activity) × Total Contract Value`

**Example:** A 1-year contract for \$120,000. The total expected activity is 12,000,000 syncs with a known ramp-up pattern.

| Period   | Estimated Activity | Calculation           | Revenue Recognized |
| :------- | :----------------- | :-------------------- | :----------------- |
| Month 1  | 0 Syncs            | (0 ÷ 12M) × \$120k    | \$0.00             |
| Month 2  | 100k Syncs         | (0.1M ÷ 12M) × \$120k | \$1,000.00         |
| Month 6  | 1M Syncs           | (1M ÷ 12M) × \$120k   | \$10,000.00        |
| Month 12 | 3M Syncs           | (3M ÷ 12M) × \$120k   | \$30,000.00        |

***

### 7. Equally by months with estimated transaction price

Evenly spreads an estimated total price across the term. True-ups or adjustments are applied later when actuals are finalized.

**Example:** Estimated contract value is $12,000 ($1,000/month). Final actual value is $13,200. The extra $1,200 is adjusted at year-end based on the defined deviation strategy.

| Month     | Revenue Recognized                  |
| :-------- | :---------------------------------- |
| Jan – Nov | \$1,000.00                          |
| Dec       | $2,200.00 (Includes $1,200 true-up) |

***

## Adjustments and period close

When actuals deviate from estimates at the close of a period (monthly, quarterly, or annually), past closed periods remain untouched. Adjustments strictly flow into open periods using one of three routing strategies:

* **Front load:** The entire adjustment is applied to the earliest available open period.
* **Straight line:** The adjustment is spread evenly across all remaining open periods.
* **Back load:** The adjustment is pushed entirely to the final period of the contract.

***

## ERP integration and auditing

Revenue methods integrate natively with standard financial systems to produce accurate ledger entries:

* **QuickBooks:** Monthly aggregated journal entries.
* **NetSuite:** Real-time posting rules.
* **Sage Intacct:** Multi-dimensional reporting.
* **Custom ERP:** Direct API-based integration.

Regardless of the distribution method chosen, the system generates comprehensive audit trails, period-end summaries, variance analysis, and the required compliance documentation for ASC 606 / IFRS 15 audits.