What is SaaS Revenue Recognition

In accounting, revenue recognition’s core principle states that an entity should only record revenue when it has been earned, not when the related invoice has been posted or related cash has been collected.

The core accounting principle to the guidance in ASC 606 / IFRS 15 is to “recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” As a result, we must follow a five-step framework to revenue recognition.

Typically, in SaaS, we recognize subscription revenue over the term of the contract. When we invoice, it creates a deferred revenue liability on the balance sheet. Each month, we perform revenue recognition which pulls from this liability balance and moves a portion to revenue on the P&L.

Additional SaaS Resources

Check out this in-depth post at The SaaS CFO – SaaS Revenue Recognition