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A Brief Introduction to Upcoming Regulation Changes
The five-step process to recognizing revenue:
(http://www.fasb.org/)
1. Identify the contract with the customer.
2. Identify the separate performance obligations in the
contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate
performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies
a performance obligation.
What Does This Mean for SaaS Companies?
SaaS is just different. Just as the name implies you are delivering
a service and thus need to recognize the revenue you earn as you
deliver on that service obligation over the term of the contract. If
you are not accounting for this properly you could be overstating
earnings and overpaying on your taxes.
Effective Date Jan 1, 2017
Companies that generate revenue and apply US GAAP or IFRS
are currently facing major change. In May 2014, the FASB and
IASB released a principles based standard on revenue
recognition. Companies across all industries will use a new five-
step model to recognize revenue from customer contracts.
Companies will be required to retroactively change their books
for the three previous years.
Monthly Subscription Example
Jan
Customer Signup
$30 plan on Dec
26th
As of Dec 31st the company has only delivered service for 5 days of
it’s contract and thus is only is able to recognize $5 in the current
accounting period and is carrying $25 of Unearned Revenue.
$5 $25
Annual Subscription Example
Jan
Customer
Signup $1200
Annual Plan on
Nov 1st
$100
$1200
$100 $100 $100 $100 $100 $100 $100 $100 $100 $100
As of Dec 31st the company has only delivered service for 2 months of it’s
contract and thus is only is able to recognize $200 in the current accounting
period and is carrying $1000 of Unearned Revenue.
Your Co.
Your Co.
Your Co.
What’s Next?
● Contract Management
● QuickBooks Online
● Recurly, Braintree, WePay, etc.
● Salesforce, Netsuite, SAP
RevRec Deck

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RevRec Deck

  • 1.
  • 2.
  • 3. A Brief Introduction to Upcoming Regulation Changes The five-step process to recognizing revenue: (http://www.fasb.org/) 1. Identify the contract with the customer. 2. Identify the separate performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the separate performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation.
  • 4. What Does This Mean for SaaS Companies? SaaS is just different. Just as the name implies you are delivering a service and thus need to recognize the revenue you earn as you deliver on that service obligation over the term of the contract. If you are not accounting for this properly you could be overstating earnings and overpaying on your taxes.
  • 5. Effective Date Jan 1, 2017 Companies that generate revenue and apply US GAAP or IFRS are currently facing major change. In May 2014, the FASB and IASB released a principles based standard on revenue recognition. Companies across all industries will use a new five- step model to recognize revenue from customer contracts. Companies will be required to retroactively change their books for the three previous years.
  • 6. Monthly Subscription Example Jan Customer Signup $30 plan on Dec 26th As of Dec 31st the company has only delivered service for 5 days of it’s contract and thus is only is able to recognize $5 in the current accounting period and is carrying $25 of Unearned Revenue. $5 $25
  • 7. Annual Subscription Example Jan Customer Signup $1200 Annual Plan on Nov 1st $100 $1200 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 As of Dec 31st the company has only delivered service for 2 months of it’s contract and thus is only is able to recognize $200 in the current accounting period and is carrying $1000 of Unearned Revenue.
  • 11. What’s Next? ● Contract Management ● QuickBooks Online ● Recurly, Braintree, WePay, etc. ● Salesforce, Netsuite, SAP