Proper revenue recognition is one of the more complex compliance issues for SaaS companies.
Causes for complications include:
- Subscription-based revenue
- Multiple performance obligations – setup, support, or consulting in addition to the software
- Discounts, credits, and bonuses impacting the transaction price
- Advanced payment for future services
- Contract modifications during the subscription period
The solution, as outlined in the ASC 606 standards, is for SaaS businesses to recognize revenue when the service is delivered – not when the payment is received.
This isn’t always simple to calculate, but ASC 606 does provide a framework to facilitate the process.
Impacts of ASC 606 on SaaS accounting practices
- Ensures transparency into the timing of revenue recognition
- Influences financial reporting – particularly during growth phases when upfront payments are collected but revenue is recognized over time
- Improves matching of revenue and service delivery
- Provides stakeholders a clearer picture of the company’s financial performance
Making sense of ASC 606
Understanding and applying ASC 606 is essential for SaaS founders to stay compliant, maintain accurate financials, and provide investors with a clear, transparent view of the company’s financial health.
If you’re unsure about how ASC 606 impacts your SaaS business or need help applying these guidelines effectively, schedule a discovery meeting with My SaaS Advisor. Our team of experts is here to provide personalized guidance, helping you stay on top of financial reporting and set your business up for success.
