QuickBooks Online App Recommendations and the Adaptive Unconscious: Artificial Intuition Could Soon Be Recommending ProRata as Your Revenue Recognition Solution

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     Artificial Intuition.

 

     At first glance an oxymoron, artificial intuition will change the way you are introduced to solutions thanks to data analytics. Intuition is a word we often associate with anything but artificial: “You’ll make the best decision, trust your gut,” “I knew my child was up to no good – mother’s intuition,” “Your boss has killer instinct when it comes to negotiating deals.” It is a knowledge that we know people don’t consciously have so we associate it with primal and nature-specific words. Let’s dive into some grossly simplified popular psychology!

 

     The mind consists of an conscious mind (problem-solving mind/executive mind/logic) and an unconscious mind (habitual mind/autopilot/intuition). We often think of the unconscious as primitive and it is, yet it is so far from it. It is the best evaluator, decision maker, and influencer of conscious decisions, making use of event based learning. When people feel like they are on autopilot or practice something until it is “second nature” that is the part of the brain they are training/have trained. It is far greater at crunching the lessons of past experience than your conscious mind can ever hope to toggle with. This is why experience is so invaluable as it is the only tried and true way of training the unconscious mind and influencing the conscious mind into making great decisions on the fly. This has been popularly referred to in cognitive psychology as the adaptive unconscious. However, the unconscious mind is fallible. It can try to use unlike experiences to influence your problem solving and can be primed to make decisions that you might not be fully aware of or happy with once you follow through (sources below).

 

     In the world of tech where the lifetime of a product or solution is the shortest it has ever been, how could the unconscious mind ever be prepared with the intuition to make the best decisions?

 

     Data analytics.

 

     Data analytics has provided a powerful tool from which stores and companies can provide you with artificial intuition: personalized recommendations. Not only does it suggest solutions conveniently as you search, narrowing your options, but perhaps its most vital role is that it promotes apps that based on other users experience, similar companies, etc, that you will get a recommendation that will mirror a decision you’d make if those experiences had been your own.

 

     It has been recently advertised that soon QuickBooks Online (QBO) App Store will use personalized recommendations meaning ProRata could soon be a recommendation for you to automate your revenue recognition. We say go ahead and trust your (artificial) intuition – it’s looking pretty good!

 

Sources:

Martin, N. (2008). “Habit” Upper Saddle River, NJ: FTPress.

QBO(https://developer.intuit.com/hub/blog/2016/08/05/introducing-personalized-app-recommendations-quickbooks-online)

QBO Firm of the Future (http://firmofthefuture.com/apps)

David McRaney “You Are Not So Smart”

Jonah Lehar “How We Decide”

Artificial Intuition: (http://artificial-intuition.com/intuition.html)

Welcome ProRata, Your Revenue Recognition Solution of Choice for Startups and SMBs

Software Startups and Revenue Recognition

Revenue recognition may be a mysterious concept to a lot of software startup founders, but it is an important accounting concept to understand when running a business.

Revenue Recognition Criteria

When a product or service is sold, certain conditions must be met for that product or service to be recognized as revenue. If you sell a 1 year software subscription for $1,200 in January, you can not recognize all $1,200 as revenue in January. It must be spread across the entire span of the subscription.

The criteria for recognizing revenue are:

  • persuasive evidence of an arrangement exists
  • delivery has occurred
  • the software vendor’s fee is fixed or determinable
  • collection of fees is probable

This is especially important for software companies who sell annual software agreements, charge maintenance fees, or do custom software development.

Deferred Revenue

Revenue recognition can be handled by creating a new liability account called Deferred Revenue. This is revenue that you have collected money for, but cannot recognize as revenue yet based on the criteria described above.

The journal entries might look like:

Record the entire amount against deferred revenue

DebitCredit
A/R $1,200
Deferred Revenue $1,200

Each month, recognize 1/12th against revenue

DebitCredit
Deferred Revenue $100
Revenue $100

Why is revenue recognition important for startups?

Venture Capital

Software companies who might pursue investment from venture capital firms will most likely be asked to provide financials that follow these guidelines. It’s beneficial to start doing this early to avoid re-stating revenue for past years.

Financial Institutions

Financial institutions, much like venture capitalists, will require revenue to be reported that meet these standards. You may be required to prepare statements in accordance to GAAP and provide these as part of your terms for financing.

QuickBooks Revenue Recognition

QuickBooks revenue recognition can be a manual process, however ProRata can automate this process for your company.

Continue reading “QuickBooks Revenue Recognition” »

FASB Accounting Standards Update and Revenue Recogntion for SaaS Companies

The FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) recently published a joint revenue standard that changes the way companies can recognize revenue. It provides a single standard for all companies in all industries. (read the joint standards document here)

How the FASB Revenue Standards Affects SaaS Companies

If you use generally accepted accounting principles (GAAP), this means you will will likely have to change the way you are reporting revenue.

Handling Multiple Services in the Same Contract

The new standards require companies to identify performance obligations separately. We will start with an example of Acme Corporation who sold:

  • 1 Year Annual Software Agreement starting in January
  • A 3-day consulting engagement in July
  • A software customization package to be delivered in October

With the new accounting standards revenue must be recognized in the following way:

  • Revenue from the Annual Software Agreement must be recognized evenly throughout the year. (see our article on how to calculate deferred revenue for more information)
  • Revenue from the consulting engagement must be separately recognized in July
  • Revenue from the software customization package should be recognized when it is delivered, in October

Handling Contract Changes

It is common for SaaS companies to modify a contract before it expires. One example is adding more users as the customer grows. Another is for companies that use a consumption-based pricing model where a customer may be charged more for increased consumption such as file storage.

The new standards laid out by the FASB recommend clearly stating when these events will occur and how clients will be billed.

How Can You Ensure You Are Ready?

If you are using an accounting system such as QuickBooks, revenue recognition can be a little difficult and involve manual processes to ensure you are in compliance. ProRata was purpose built with these requirements in mind. ProRata can integrate with your QuickBooks account and help you meet the new standards.

 

QuickBooks Deferred Revenue

Learn how to setup unearned or deferred revenue in QuickBooks and how to use ProRata to automate your journal entries.

Continue reading “QuickBooks Deferred Revenue” »

How To Calculate Deferred Revenue

Deferred revenue is a important accounting concept for SaaS companies who have long term agreements such as annual and multi-year subscriptions. We will explain why and how to calculate deferred revenue.

Continue reading “How To Calculate Deferred Revenue” »