Subject Revenue Recognition Memo - SaaS Software Service under ASC 606

Date: [Insert Date]

To[Recipient's Name] From: [Your Name] CC: [CC Names, if applicable] Subject: Revenue Recognition Analysis for SaaS Subscription with Installation and Training Fee

This memo outlines the accounting treatment for revenue recognition of a SaaS software service with an annual fee of $9,000, including a one-time $1,000 fee for installation and training, and a refund policy based on usage frequency.

1. Step 1: Identify the Contract with the Customer (ASC 606-10-25-1)

2. The contract is a binding agreement between the company and the customer for the provision of SaaS access, installation, and training.

3. Step 2: Identify Performance Obligations (ASC 606-10-25-25)

4. There are two distinct performance obligations: (a) SaaS access and (b) installation and training services.

5. Step 3: Determine Transaction Price (ASC 606-10-32-10)

6. The total transaction price is $9,000, which includes both the recurring SaaS access and the one-time installation and training.

7. Step 4: Allocate the Transaction Price (ASC 606-10-32-35)

8. The $1,000 installation and training fee is recognized at a point in time when the service is provided.

9. The remaining $8,000 for the SaaS access is recognized over time as the customer consumes the service.

10. Step 5: Recognize Revenue (ASC 606-10-50-1)

11. For the SaaS access, revenue is recognized using the straight-line method over the one-year subscription period.

12. For the installation and training, revenue is recognized upon completion.

13. Step 6: Consider Variable Consideration (ASC 606-10-32-10)

14. The refund policy creates variable consideration. Based on historical experience, 10% of customers are expected to receive a refund of $1000.

15. Step 7Estimate and Recognize Variable Consideration (ASC 606-10-32-20)

16. Apply the most likely amount approach to estimate the refund liability, which is $900 ($9,000 x 10%).

17. Recognize a liability for the refund expectation at the outset of the contract.

18. Step 8Adjust Revenue for Variable Consideration (ASC 606-10-32-23)

19. Reduce the initial recognition of revenue by the estimated refund liability.

20. Step 9: Reassessment of Variable Consideration (ASC 606-10-32-30)

21. Monitor and reassess the refund liability periodically, adjusting revenue recognition as necessary.

22. Step 10: Disclosures (ASC 606-740-50-15)

    • Provide relevant disclosures about the nature, amount, timing, and uncertainty of revenue, including the refund policy and related estimates.

Please note that the actual recognition of revenue may vary based on the specific facts and circumstances of each customer engagement.

[Your Name] [Your Title/Position]