Revenue Recognition and ASC 606
The U.S. Generally Accepted Accounting Principles (GAAP) guideline—known as ASC 606—requires businesses to track and identify their earned and deferred revenue. This process is complicated by subscriptions, which often collect payment before all services or products are rendered. And getting revenue recognition for SaaS right as a business scales becomes tedious and even unmanageable if done manually or within legacy systems.
Under ASC 606, recurring revenue is recognized differently. A customer may pay for a year’s software access, but the seller can only recognize revenue as that access is delivered. This means after the first month of a $1,200 annual subscription, only $100 is recognized revenue. The other $1,100 is deferred revenue.
This difference is tricky but manageable for the simplest of subscription models. However, the reality is subscription and SaaS model businesses are rarely simple. One-time initial start-up fees, hybrid and usage-based billing, and mid-term contract changes are just a few complexities that put more work on a finance team’s plate. Stax Bill provides different settings and configurations for revenue recognition and allows billing clerks to begin their steps to ASC 606 adherence.
Stax Bill and Revenue Recognition
Stax Bill allows you to customize the earning and revenue recognition on subscriptions, purchases, and products. These settings allow you to adjust earnings and help billing clerks to the path of compliance with new standards. With the complexity of SaaS and subscriptions, the settings offered can be tailored to your company's needs to help facilitate new requirements. Due to the complexity of SaaS and subscriptions, Stax Bill Revenue Recognition allows for a starting point on the road to ASC 606 compliance.
The following articles address Revenue Recognition and provide some information on best practices.
When creating a catalog, you can set earnings based on time: See Setting Charge and Earning Options.
Deposits and revenue recognition: See Setting up a fee to act as a deposit.
Revenue Recognition and Reporting: See Revenue Recognition, Earning/Earned, and Deferred Revenue in Stax Bill.