RevRec Ready Hot-Tip #16 – Consider How RevRec Impacts Your Sales Team
Consider How RevRec Impacts Your Sales Team
Per ASU 2014-09, a performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. If an entity promises in a contract to transfer more than one good or service to the customer, the entity should account for each promised good or service as a performance obligation only if it is (1) distinct or (2) a series of distinct goods or services that are substantially the same and have the same pattern of transfer.
Under the new guidelines, this revenue now has to be prorated for recognition, so now the sales person would get $10 a month for a year based on the monthly recognition of the revenue – a significant change!
Understanding the changes in the revenue schedule and how it impacts employee compensation is critical and needs to be addressed early in the implementation process.