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Ryudo · 10-21-2009, 03:35 PM

Im having trouble classifying something for revenue recognition. Its a company that sells a communication service for shipping fleets and they charge for the installation of the hardware as well as the subscription fee. They appear that they should be recognized separately, but the rules say differently. How should I recognize the revenue as one transaction when there are two parts to it? Thanks in advance for any help

ZahiD · 10-21-2009, 05:34 PM

It really depends....

If there is a contract involved, for eg. $200 for installation and $10/month for a year. Lets just someone orders this service then for that customer you will accrue the revenue. In our case it would be $200 + $120 = $320 sales revenue.

Ryudo · 10-21-2009, 06:15 PM

There is. The installation is a flat rate of 10,000 and the subscription is 300/,month and the contract is for a year. the only thing is that the case says that there are no competitors so they have to be put together correct?

rdean03 · 11-04-2009, 11:38 AM

SAB 101 says transactions must meet the following criteria before revenue is recognized:

1. There is persuasive evidence of an arrangement.
2. Delivery has occurred or services have been rendered.
3. The seller’s price to the buyer is fixed or determinable.
4. Collectability is reasonably assured.

From the information that you have provided it appears that at least #2 has not been satisfied and perhaps #4. There are often problems will revenue recognition for companies as the sales and management teams want to recognize revenue immediately. However, your company can get into some pretty hot water if/when they are audited.

Pat · 11-04-2009, 02:00 PM

There are new revenue recognition rules in effect - see http://www.mfa-cpa.com/mfa-news-and-...ion-sept09.asp

Depends on where you fall in the new rules that generally speed up recognition of revenue.

10-21-2009, 03:35 PM	#1 (permalink)
Ryudo Status: n00b Join Date: Oct 2009 Posts: 2 Rep Power: 0	Revenue Recognition Im having trouble classifying something for revenue recognition. Its a company that sells a communication service for shipping fleets and they charge for the installation of the hardware as well as the subscription fee. They appear that they should be recognized separately, but the rules say differently. How should I recognize the revenue as one transaction when there are two parts to it? Thanks in advance for any help

10-21-2009, 05:34 PM	#2 (permalink)
ZahiD Status: Administrator Join Date: Mar 2008 Location: Santa Clara, CA Posts: 572 Blog Entries: 7 Rep Power: 10	It really depends.... If there is a contract involved, for eg. $200 for installation and $10/month for a year. Lets just someone orders this service then for that customer you will accrue the revenue. In our case it would be $200 + $120 = $320 sales revenue. __________________ Zahid H. Lilani Tax Accountant, eZeeTAX, Inc. http://ezeetax.com AccountingBLOCK is on Facebook and Twitter

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10-21-2009, 06:15 PM	#3 (permalink)
Ryudo Status: n00b Join Date: Oct 2009 Posts: 2 Rep Power: 0	There is. The installation is a flat rate of 10,000 and the subscription is 300/,month and the contract is for a year. the only thing is that the case says that there are no competitors so they have to be put together correct?

11-04-2009, 11:38 AM	#4 (permalink)
rdean03 Status: n00b Join Date: Oct 2009 Location: Peninsula, CA Posts: 4 Rep Power: 0	SAB 101 says transactions must meet the following criteria before revenue is recognized: 1. There is persuasive evidence of an arrangement. 2. Delivery has occurred or services have been rendered. 3. The seller’s price to the buyer is fixed or determinable. 4. Collectability is reasonably assured. From the information that you have provided it appears that at least #2 has not been satisfied and perhaps #4. There are often problems will revenue recognition for companies as the sales and management teams want to recognize revenue immediately. However, your company can get into some pretty hot water if/when they are audited.

11-04-2009, 02:00 PM	#5 (permalink)
Pat Status: Moderator Join Date: Apr 2009 Location: USA Posts: 152 Rep Power: 19	There are new revenue recognition rules in effect - see http://www.mfa-cpa.com/mfa-news-and-...ion-sept09.asp Depends on where you fall in the new rules that generally speed up recognition of revenue.

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