Ratable recognition
Ratable recognition spreads revenue evenly over the period a performance obligation is satisfied. It is typical of stand-ready SaaS access, where time elapsed faithfully depicts transfer. It is a measure-of-progress conclusion for an obligation satisfied over time, not a default for every contract.
Standard references
- ASC 606606-10-25-27 and 25-31
- IFRS 15paragraphs 35 and 39
- Ind AS 115paragraphs 35 and 39
Worked example
Illustrative: a $36,500 annual subscription (365 days) with access starting 15 February.
- Daily convention: $36,500 / 365 = $100 per day.
- February: 15–28 February is 14 days, so $1,400.
- A monthly convention with a half-month for February would give $1,520.83 instead ($36,500 / 12 / 2).
- Pick one convention, document it, and apply it consistently.
Result: February revenue of $1,400 under a daily convention; the remaining $35,100 follows over the term.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Starting recognition at signature instead of when access is provided.
- Following the billing schedule instead of the pattern of transfer.
- Rounding each period independently so the total does not equal the allocated amount.