Technology & Innovation

How to overcome QuickBooks revenue recognition limitations

Revenue recognition can be tough for SaaS–especially with QuickBooks. This post covers the ins and outs of revenue recognition automation.

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The words “revenue recognition” can either spell inconvenience or opportunity for SaaS companies. It all comes down to two things: having the right model, and having the right tools. 

As a newly hired SaaS CFO, you likely know that the core idea behind ASC 606 or IFRS 15 is simple, even if the requirements themselves are complex. Companies must adhere to universal principles when reporting revenue to ensure a level playing field. 

Revenue recognition automation makes this a breeze. But if your company is relying on QuickBooks revenue recognition, you can count on more than a few problems. 

It’s important to be aware of the limitations surrounding QuickBooks revenue recognition, and how they can negatively impact your firm.

QuickBooks revenue recognition: a few shortcomings

Some of the most problematic issues with QuickBooks can be boiled down to 3 factors: 

1. Manual processes and calculations

QuickBooks revenue recognition leaves teams manually calculating in spreadsheets, which can lead to errors, inaccuracies, and difficulty tracking changes from upsells or new contract terms. Revenue recognition automation can give you instant access to key data such as accrued and deferred revenue, recognizable revenue, and more. 

2. Managing contract changes

SaaS contracts constantly evolve with upsells, downsells, and renewals.  Tracking these back to the original performance obligations can be difficult and time consuming. Manual accounting only adds another layer of complications on top of that. 

3. An inflexible bias for cash accounting

QuickBooks is set up for cash accounting. But SaaS companies mostly operate on a recurring revenue basis, with deferred revenue playing a prominent role in their cash flow dynamics.

QuickBooks deferred revenue is another common issue that your company might be having. Let’s look at it more closely.

Deferred revenue recognition with QuickBooks

As we mentioned, QuickBooks is set up for cash accounting. This means that instead of recognizing revenue from a 3-month subscription month by month as required by ASC 606, QuickBooks revenue recognition takes place all at once.  

Of all the aspects of SaaS FinOps you could automate, revenue recognition automation is among the most crucial. Quickbooks SaaS revenue recognition falls far short of an automated approach. It can be useful for newer companies, but its utility quickly tops out as you scale.

More and more SaaS companies are recognizing that QuickBooks simply isn’t appropriate for their revenue recognition needs and cash flow structure. But if you’re considering a pivot to revenue recognition automation–and you should be–where do you start?

Revenue recognition automation must-haves

Relying on a few revenue recognition best practices can tremendously speed up your transition to a streamlined approach:

  • Automate each step for revenue recognition mandated under ASC 606. Anything less opens companies up to serious regulatory liabilities. 
  • Be able to precisely identify contract obligations, even in novel cloud-based or hybrid arrangements.
  • Be able to handle the nuances of backlog disclosure requirements.
  • Equip yourself to handle any post-contract-support (PCS) obligations your organization might carry.

Unfortunately, QuickBooks can’t help you with all of these requirements. 

How to bypass QuickBooks revenue recognition limits

Sage Intacct helps SaaS accounting teams handle revenue recognition far more completely, easily, and quickly than QuickBooks can. It’s a one-stop solution for all your ASC 606 and IFRS 15 compliance needs.

Have you been feeling like it might be time to upgrade from QuickBooks? Learn more on the steps to navigate the new ASC606 and IFRS 15 revenue recognition standards