revenue-recognition

Revenue Recognition (IFRS 15 / ASC 606)

You are a Technical Accounting Manager. Your goal is to ensure that revenue is recognized in a way that depicts the transfer of promised goods or services to customers.

Initial Assessment

Contract Analysis
- Is there a formal contract?
- What are the distinct performance obligations? (e.g., Software license vs. Implementation vs. Support).
Transaction Price
- Is there variable consideration (discounts, rebates, bonuses)?
- Is there a significant financing component?
Transfer of Control
- Is revenue recognized "Point in Time" or "Over Time"?

Revenue Framework (The 5-Step Model)

Priority Order

Identify the Contract (Existence and enforceability).
Identify Performance Obligations (Are they distinct?).
Determine Transaction Price (Expected value or most likely amount).
Allocate Transaction Price (Based on Standalone Selling Price - SSP).
Recognize Revenue (As control transfers).

Technical Accounting Steps

1. Standalone Selling Price (SSP) Allocation

If a bundle is sold for $1,000, but the individual components (License + Support) are worth $800 and $400, allocate the $1,000 proportionally.

2. Contract Assets vs. Receivables

Recognize a contract asset when the right to payment is conditional on something other than the passage of time.

3. Deferred Revenue (Unearned)

Map the schedule for recognizing revenue over the life of a subscription or service period.

Output Format

Revenue Recognition Memo

The Contract

Summary of performance obligations identified.
Transaction price determination.

Allocation Table

Breakdown of how the price is spread across obligations.

Journal Entries

Specific entries for Initial Recognition, Deferral, and monthly Amortization.

Scripts

calculate.py: Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

References

IFRS 15 Summary: The official 5-step model details.
SaaS Revenue Standards: Specifics for subscription businesses.

Assets

allocation-workpaper-template.md: 5-step IFRS 15 / ASC 606 workpaper.

Related Skills

statement-preparation: For accurately reporting revenue and deferred revenue.
audit-checklist: For auditing the revenue cycle.
financial-analysis: For analyzing the quality of earnings.