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, Training, and Cash Discount
- Step 1: Identify the Contract with the Customer (ASC 606-10-25-1)
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The contract involves a SaaS subscription, installation, and training services, with a cash discount offered for upfront payment.
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Step 2: Identify Performance Obligations (ASC 606-10-25-25)
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There are two distinct performance obligations: (a) SaaS access and (b) installation and training services.
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Step 3Determine Transaction Price (ASC 606-10-32-10)
- The total transaction price without discount is $9,000, with $1,000 for installation and training and $8,000 for the SaaS subscription.
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The 5% cash discount reduces the transaction price to $8,550.
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Step 4: Allocate the Transaction Price (ASC 606-10-32-35)
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Allocate the reduced transaction price proportionally to each performance obligation:
- Installation and training$990 ($1,000 / $9,000 * $8,550)
- SaaS access: $7,560 ($8,000 / $9,000 * $8,550)
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Step 5: Recognize Revenue (ASC 606-10-50-1)
- For the installation and training, recognize revenue at a point in time when the service is provided.
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For the SaaS access, recognize revenue over time, typically using the straight-line method over the one-year subscription period.
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Step 6: Consider Cash Discount (ASC 606-10-32-21)
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The cash discount is treated as a variable consideration, but since it is a fixed discount for upfront payment, it is recognized at the time of sale.
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Step 7: Disclosures (ASC 606-740-50-15)
- Provide relevant disclosures about the nature, amount, timing, and uncertainty of revenue, including the cash discount policy.
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]
