What is Revenue Recognition?
The rules that decide when a sale actually becomes revenue on your income statement.
Revenue Recognition: definition
Getting paid and earning revenue are not the same event. Revenue recognition governs the gap. Under the modern standard, ASC 606 (and IFRS 15), you recognize revenue as you satisfy performance obligations to the customer, following a five-step model. For subscriptions and multi-element deals, this means revenue is spread over time rather than booked at the moment of payment.
- 1Identify the contract with the customer
- 2Identify the distinct performance obligations
- 3Determine the transaction price
- 4Allocate the price to each performance obligation
- 5Recognize revenue as each obligation is satisfied
How Fintra handles it
Fintra applies the ASC 606 model programmatically. It maps each contract to its performance obligations, allocates the transaction price, and recognizes revenue on the right schedule - point-in-time for one-off deliveries, over-time for subscriptions and services. Deferred revenue and recognized revenue stay reconcilable, and the close verifies the totals.
- Contract-to-obligation mapping with price allocation
- Over-time and point-in-time recognition schedules
- Deferred vs. recognized waterfall that ties out for audit
Worked example
Frequently asked questions
When should revenue be recognized?
When control of the good or service transfers to the customer and the performance obligation is satisfied - which may be at a point in time (a product ships) or over time (a subscription delivers monthly). Cash timing does not determine it; delivery does.
What is the five-step model?
ASC 606 defines five steps: identify the contract, identify performance obligations, determine the transaction price, allocate that price across obligations, and recognize revenue as each obligation is satisfied. Fintra applies these steps to each contract automatically.
How is revenue recognized for SaaS?
A SaaS subscription is an over-time obligation, so revenue is recognized ratably across the term - typically monthly - with the unearned portion held as deferred revenue. Usage-based and multi-element deals add allocation steps that Fintra handles.
Does Fintra handle ASC 606 automatically?
Yes. Fintra maps contracts to obligations, allocates the price, and posts recognition on the correct schedule, keeping deferred and recognized revenue reconcilable for audit - no spreadsheet rev-rec model to maintain.
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