5 Steps to Recognizing Revenue

The FASB has released an accounting standards update (ASC 606) titled “Revenue from Contracts with Customers (Topic 606)” which outlines how software companies should recognize revenue:

  1. Identify contracts with a 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
  5. Recognize revenue when your company satisfies each performance obligation

Experts recommend understanding the impact of the new revenue recognition standard and prepare for the transition. Here are some tips on preparing for the transition:

  • Gather stakeholders across departments (Sales, Operations, Finance)
  • Discuss current practices for revenue recognition using the 5 steps above and discuss how the changes affect each department
  • Implement a plan to properly recognize revenue in your accounting system. ProRata enables users of QuickBooks Online to automate their revenue recognition process.