BTerrell Group Blog

In order to maintain a loyal client base and attract new clients, discounts are a go-to effort for most companies. When promising discounts to clients on future purchases of products or services, there are a few guidelines to follow. As discussed in “Accounting for Significant Incremental Discounts on Future Purchases,” posted on RevenueRecognition.com, the specific guidance for offering discounts for future purchases is defined in Accounting Standards Codification (ASC) 985-605, Sections 55-82 through 55-85. While this method is mostly used in the software industry, it can also be applied to other industries.

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The confusing complexities that just may come back to bite you

In our continuing series covering the major and minor points of the new Revenue Recognition rules contained within ASC 606, we wanted to shed some light on some of the nuances laced through the rules’ verbiage. While on the surface the rules sound fairly straightforward, there are some confusing complexities that it’s important for your organization to be aware of and to understand. Here we look at just one component of the rule – identifying the performance obligations of a contract - to illustrate how a seemingly simple concept gets a bit more complicated the deeper we look.

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You know your business is unique. Depending on what you offer, what industry you focus on, and even where you’re located, you’re bringing some type of unique value to your clients. The way you manage your accounting can also be very different than other businesses. Some industries have certain ways of managing contracts while others take an entirely different approach.

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Back in April of 2010, the Financial Accounting Standards Board published new accounting guidance for calculating an often challenging method for recognizing payments on certain forms of revenue. Published as “ASU 2010-17: Revenue Recognition – Milestone Method (Topic 605)”, and discussed in draft abstract form in “EITF 08-9: Milestone Method of Revenue Recognition” on RevenueRecognition.com, the method allows vendors to recognize revenue at the time that a contractual obligation has been fulfilled, instead of applying revenues systematically throughout the term of the contract. However, because of the complexity of dealing with contractual incentives, such as bonuses, the milestone method outlines a few criteria that must be met.

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The new revenue recognition standards, jointly issued by the FASB and IASB on May 28, 2014 in ASC 606 Revenue from Contracts with Customers, loom around the fiscal corner – publicly traded companies must begin their compliance with the new rules January 1, 2018, and their privately held counterparts follow in January of 2019. It is most certainly not too early to begin laying the foundation for the transition. While the changes can appear daunting, there are several action steps you can take now to ensure a smoother move.

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