Subject Revenue Recognition Memo - SaaS Software Services under ASC 606
Date: [Insert Date]
To[Recipient's Name] From: [Your Name] CC: [CC Names, if applicable] Subject: Accounting Treatment for Revenue Recognition of SaaS Software Services
This memo outlines the application of ASC 606, "Revenue from Contracts with Customers," for a SaaS software service with an annual fee of $9,000, inclusive of $1,000 for installation and training.
- Step 1: Identify the Contract with the Customer (ASC 606-10-25-1)
-
Analyze the agreement to confirm its existence, terms, and conditions.
-
Step 2: Identify Performance Obligations (ASC 606-10-25-25)
-
The contract includes two distinct performance obligations: the SaaS access and the installation/training services.
-
Step 3: Determine Transaction Price (ASC 606-10-32-1)
-
The total transaction price is $9,000, which must be allocated to each performance obligation.
-
Step 4: Allocate the Transaction Price (ASC 606-10-32-35)
- Allocate the price proportionally to the standalone selling prices (SSPs) of each obligation.
-
Assuming no separate SSPs are available, allocate the price based on the relative standalone value.
-
Step 5: Recognize Revenue (ASC 606-10-50-1)
- For the SaaS access, recognize revenue over time as the customer simultaneously receives and consumes the benefits.
-
For the installation/training services, recognize revenue at a point in time when the service is completed.
-
Step 6: Consider Variable Consideration (ASC 606-10-32-10)
-
There is no mention of variable consideration in this scenario, so we assume none applies.
-
Step 7: Non-Cash Considerations (ASC 606-10-32-27)
-
Not applicable since the payment is in cash.
-
Step 8: Contract Modifications (ASC 606-10-32-45)
-
No modifications are mentioned in this case.
-
Step 9: Disclosures (ASC 606-740-50-15)
- Provide relevant disclosures about the nature, amount, timing, and uncertainty of revenue.
Please note that the allocation of the transaction price between the SaaS access and installation/training services requires judgment. If the standalone selling prices are not readily available, management's best estimate should be used.
[Your Name] [Your Title/Position]
