You Need to Prepare for the ASC 606 Accounting Changes Now

You Need to Prepare for the ASC 606 Accounting Changes Now

If you’re a business owner, an accountant or even just working in the accounting field, you’ve probably heard all the chatter about ASC 606 (also known as FASB Update #2014-09 or IFRS 15) – “Revenue From Contracts with Customers”. Beginning in 2018 – or earlier if you choose to be an early adopter – the way you recognize revenue is going to change, regardless of your business (with a few minor exceptions) or geography, since you either need to follow FASB or IFRS standards. Private company? Yup…it applies to you too, only one year later. For some companies, revenue recognition will be accelerated; if your contracts are not properly written, it could be seriously delayed! Both of these scenarios can have a major impact on your financial performance.

So, what do you need to do to get ready?  How do you know if your ERP will move you into the future? Are you confident of GAAP compliance?

One of the keys is to understand the five-step process involved in recognizing “revenue from contracts with customers”, and ensuring your ERP can do the proper calculations to ensure your compliance:

  1. Identify the “contracts” with your customers.
  2. Determine the contract “performance obligations”.
  3. Determine the transaction price (or “standalone selling price” – SSP) of each performance obligation.
  4. Allocate the contract revenue to each performance obligation based on relative SSPs.
  5. Recognize the revenue upon satisfaction of the performance obligation.

Some portions of the five steps are not “systems” or ERP steps – for example, your ERP cannot apply the tests necessary to determine if your customer relationships result in a contract under ASC 606, nor can your ERP determine if the performance obligation has been properly satisfied, nor can it determine the standalone selling price of each performance obligation. These steps require your judgment. However, being able to separate out the performance obligations and allocate the revenue appropriately across them based on their SSP, are definitely steps where you should be able to rely on your ERP.  If your ERP is unable to do these calculations and proper revenue recognition steps, prepare to enter an “Excel nightmare” – massive spreadsheets to reallocate the revenue, Excel-based waterfall recognition reports, and manual journal entries to ensure your GL is updated on a regular basis. Doesn’t sound like much fun, does it?!

asc 606 accounting changes

If you are using Dynamics GP, your standard out-of-the-box GP installation is going to need some help. While Dynamics GP can separate the performance obligations, which are basically line items on an SOP document, it cannot reallocate the revenue. So what is the solution?

Binary Stream Software’s products – Advanced Recurring Contract Billing, Advanced Revenue and Expense Deferrals and Multi-Element Revenue Allocation are designed with both today’s standards and ASC 606 in mind. Providing you with line level billing and pricing control, line level deferrals and proper revenue allocation, they allow your ERP to function as a fully integrated revenue recognition suite, giving you the peace of mind that you are in compliance with the latest revenue recognition standards.

To learn more about how Binary Stream can help support you in your compliance of ASC 606, register for our webcast on Wednesday, February 15 at 2 PM ET.

Prepare for ASC 606 with Binary Stream
Wednesday, February 15th

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