For companies that sell physical goods, recognizing revenue on sales is very easy and straightforward. Depending on the shipping terms, once the product is shipped or received by the customer, the revenue and costs for those goods are recognized.
However, if your business sells software, services or other intellectual property, then the rules, as well as the accounting for revenue recognition, can be a nightmare. There are a myriad of revenue recognition standards that must be applied over the period of the contract or agreement. Most importantly, many companies are not aware that these rules are expected to undergo substantial changes over the next few years.
Revenue recognition is a significant problem for Software as a Service companies (SaaS). They process hundreds or thousands of orders every month. Each element of their contract, including subscriptions, support and professional services must be accounted for and tracked separately. Many times, these orders can span three to five years.
Faced with these challenges, how do the majority of firms we speak with handle their revenue recognition? Spreadsheets.