{"id":8803,"date":"2023-03-29T15:24:35","date_gmt":"2023-03-29T19:24:35","guid":{"rendered":"https:\/\/www.sage.com\/en-ca\/blog\/?post_type=sage_glossary&#038;p=8803"},"modified":"2023-03-29T15:24:35","modified_gmt":"2023-03-29T19:24:35","slug":"what-is-subscription-revenue-accounting","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-ca\/blog\/glossary\/what-is-subscription-revenue-accounting\/","title":{"rendered":"What is subscription revenue accounting?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-ca\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is subscription revenue accounting?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is subscription revenue accounting?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-ca\/blog\/glossary\/what-is-subscription-revenue-accounting\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<p class=\"\">Companies who use a subscription model to bill customers must follow specific revenue recognition rules. Subscription revenue accounting requires revenue to be calculated differently than traditional businesses. It&#8217;s based on the interval at which the supplier has met its implicit and explicit performance obligations and at which customers pay open invoices.<\/p>\n\n\n\n<p class=\"\">Updated subscription revenue accounting requirements were put into place in 2019. These requirements are often referred to as ASC 606 revenue recognition requirements and they are broken down into five steps. <\/p>\n\n\n\n<p class=\"\">These five steps are:<\/p>\n\n\n\n<p class=\"\">\u2022 Step 1: Identify the contract with a customer<br>\u2022 Step 2: Identify the performance obligations in the contract<br>\u2022 Step 3: Determine the transaction price<br>\u2022 Step 4: Allocate the transaction price<br>\u2022 Step 5: Recognize revenue when or as the entity satisfies a performance obligation<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Common ASC 606 Definition Questions:<\/h2>\n\n\n\n<p class=\"\">What is a performance obligation?<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Your promised goods and services:\n<ul class=\"wp-block-list\">\n<li>The right to use your software to accomplish a task (ex: payroll, expenses, social, etc)<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Performance Obligations are explicitly stated in your Contract OR something not stated but common in your business processes\n<ul class=\"wp-block-list\">\n<li>So you really need to know what promises were stated<\/li>\n\n\n\n<li>And what your business practices are (what anyone in the company will do for the customer)<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p class=\"\">How is a performance obligation different for subscription revenue recognition?<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The idea is you look at each distinct performance obligation not only to identify them but to see how they individually and together help you keep and grow the customer relationship.<\/li>\n<\/ul>\n\n\n\n<p class=\"\">Growing Software as a Service (SaaS) companies and companies generating revenue from contracts with customers, such as professional services organizations (PSO), often see an almost exponential increase in complexity in meeting revenue recognition requirements as their customer count increases. Contract amendments, upsells, downsells, renewals, and other customer demands quickly outgrow spreadsheets and manual processes, leading many companies to&nbsp;automate revenue recognition as part of their overall subscription revenue accounting process. <\/p>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p class=\"cta-content__title\">Get a roundup of our best business advice in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-8949a954-88b2-43bb-8b8a-77c53eb34350\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-ca\/blog\/wp-content\/uploads\/sites\/12\/2022\/04\/GettyImages-1073797282-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-ca\/blog\/wp-content\/uploads\/sites\/12\/2022\/04\/GettyImages-1073797282-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Companies who use a subscription model to bill customers must follow specific revenue recognition rules. Subscription revenue accounting requires revenue to be calculated differently than traditional businesses. It&#8217;s based on the interval at which the supplier has met its implicit and explicit performance obligations and at which customers pay open invoices. Updated subscription revenue accounting [&hellip;]<\/p>\n","protected":false},"author":1309,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[258],"class_list":["post-8803","sage_glossary","type-sage_glossary","status-publish","hentry","tag-cloud-financial-management"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice Canada English","distributor_original_site_url":"https:\/\/www.sage.com\/en-ca\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/sage_glossary\/8803","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/users\/1309"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/sage_glossary\/8803\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/media?parent=8803"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/tags?post=8803"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}