Revenue Recognition Agent

ASC 606 / IFRS 15 revenue recognition analysis and compliance for SaaS, services, and multi-element arrangements. Guides the 5-step recognition model, identi...

Security Scan

This is an instruction-only ASC 606 / IFRS 15 revenue-recognition helper whose requested resources and runtime instructions are coherent with its stated purpose and it does not request credentials or install code — review sensitive input and validate outputs with a qualified accountant before relying on them.

Purpose & Capability

The name, description, and SKILL.md all describe an accounting advisory assistant for ASC 606/IFRS 15 tasks (performance obligations, transaction price, allocation, journal entries, disclosure checklists). The skill requires no binaries, env vars, or installs — these are proportionate to an instruction-only guidance skill.

Instruction Scope

The SKILL.md is an instruction-only guide for analyzing contracts and producing journal entries/schedules; it does not instruct the agent to read system files, env vars, or contact external endpoints. However, the skill expects the user/agent to supply contract and financial data (potentially highly sensitive) and contains judgment-based guidance — outputs should be reviewed by a qualified accountant. The instructions appear scoped to accounting tasks and do not perform unrelated system access.

Install Mechanism

No install spec and no code files are present. This is the lowest-risk installation footprint (nothing is written to disk by the skill itself).

Credentials

The skill requests no environment variables, credentials, or config paths, which matches its purpose. Be aware, though, that to use it you will likely paste or upload contracts, customer payment data, and other confidential financial information — treat that data as sensitive and avoid sending it to untrusted endpoints or public channels.

Persistence & Privilege

always is false and the skill does not request persistent presence or elevated privileges. Autonomous invocation is allowed by platform default but the skill itself does not ask for extra persistence or cross-skill configuration changes.

Assessment

This skill is internally consistent with its stated purpose and doesn't request credentials or install code, but: (1) treat any contracts, customer lists, or PII you provide as highly sensitive — don't paste them into public chat logs or unknown external services; (2) validate all journal entries, recognition timing, and disclosure language with a qualified accountant or your accounting team before booking or filing; (3) verify the skill's author/source (no homepage provided) and prefer internal or on-premise solutions if your data is confidential; and (4) if you need automated integration with your ERP/GL, prefer a vetted connector that uses explicit credentials and least privilege rather than pasting secrets into a chat.

ASC 606 / IFRS 15 revenue recognition for SaaS, professional services, and multi-element arrangements. Covers the full 5-step model, deferred revenue scheduling, journal entries, and audit disclosure checklists.

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When to Use This Skill

Trigger phrases:

• "How do we recognize this SaaS contract?"
• "Is this deferred revenue or revenue?"
• "Walk me through ASC 606 for this deal"
• "We have a multi-element arrangement — how do we split revenue?"
• "Customer paid upfront for 12 months — when do we book it?"
• "What are our performance obligations?"
• "Help me prepare the ASC 606 footnote disclosure"
• "SSP analysis for our pricing tiers"

NOT for:

• Tax revenue recognition — tax timing rules differ significantly from GAAP
• Government contracts under collaborative arrangements (ASC 808)
• Lease revenue — use ASC 842 / IFRS 16
• Insurance contract revenue — use ASC 944 / IFRS 17
• Financial instrument income (interest, dividends) — use ASC 320/ASC 835
• Crypto/token revenue — highly fact-specific, escalate to Irfan

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The 5-Step Model (ASC 606 / IFRS 15)

All revenue recognition flows through these five steps:

STEP 1: Identify the contract(s) with a customer
STEP 2: Identify the performance obligations in the contract
STEP 3: Determine the transaction price
STEP 4: Allocate the transaction price to the performance obligations
STEP 5: Recognize revenue when (or as) each obligation is satisfied

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Step-by-Step Guidance

Step 1: Identify the Contract

A contract exists when ALL of these are met:

CONTRACT CRITERIA CHECKLIST (ASC 606-10-25-1)
─────────────────────────────────────────────
□ Parties have approved the contract (written, oral, or implied)
□ Each party's rights regarding goods/services are identifiable
□ Payment terms for the goods/services are identifiable
□ Contract has commercial substance
□ It is probable the entity will collect the consideration

Collection probability assessment:

• Review customer credit history, payment terms, and industry
• If collection is NOT probable → no revenue until collected
• Variable consideration subject to constraint (Step 3)

Contract modifications:

• Distinct new goods/services + standalone selling price → new contract
• Not distinct or not at SSP → modify original contract (prospective or cumulative catch-up)

---

Step 2: Identify Performance Obligations

A performance obligation is a promise to transfer a distinct good or service.

Distinct test (both criteria must be met):

1. CAPABLE OF BEING DISTINCT: Customer can benefit from 
   the good/service on its own or with readily available resources.

2. DISTINCT WITHIN THE CONTRACT: Promise is separately 
   identifiable from other promises in the contract.

Common SaaS / services obligations:

Arrangement Element	Typically Distinct?	Notes
SaaS subscription	Yes (standalone)	Recognize ratably over term
Implementation/setup	Maybe	If customer can't benefit without SaaS → not distinct → combine
Training	Usually yes	Can purchase separately
Premium support	Yes	Separately priced, standalone value
Professional services (scoped)	Usually yes	Separate SOW
Professional services (highly integrated)	No	Combine with software
Content/data licenses	Yes	Distinct IP license
Hardware bundled with SaaS	Usually yes	Can use hardware independently

Series of distinct services:

• SaaS subscriptions = series of distinct services (each day/month of access)
• Treated as single performance obligation
• Revenue recognized ratably (straight-line) over subscription period

---

Step 3: Determine the Transaction Price

Transaction price = consideration the entity expects to be entitled to.

Components to analyze:

Transaction Price Components
─────────────────────────────────────────────
1. FIXED CONSIDERATION
   → Contract price net of discounts

2. VARIABLE CONSIDERATION
   Types: discounts, rebates, refunds, credits, 
          price concessions, incentives, performance bonuses,
          royalties, contingent payments
   
   Estimation methods:
   a) Expected value (probability-weighted) — best for many outcomes
   b) Most likely amount — best for two outcomes (binary)
   
   CONSTRAINT: Include variable consideration only to the extent
   it is probable a significant revenue reversal will NOT occur.

3. SIGNIFICANT FINANCING COMPONENT
   If >12 months between payment and delivery AND financing is
   a significant benefit → adjust for time value of money.
   
   Practical expedient: If contract < 1 year, ignore financing.

4. NON-CASH CONSIDERATION
   Measure at fair value of non-cash consideration received.

5. CONSIDERATION PAYABLE TO CUSTOMER
   (Discounts, coupons, rebates)
   → Reduce transaction price unless payment is for distinct good/service

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Step 4: Allocate Transaction Price

Allocate based on Standalone Selling Price (SSP) of each performance obligation.

SSP determination methods (in order of preference):

1. OBSERVABLE PRICE
   → Actual price when entity sells the good/service separately.
   → Best evidence. Use when available.

2. ADJUSTED MARKET ASSESSMENT APPROACH
   → Price the market would pay for the good/service.
   → Research competitor pricing, customer willingness to pay.

3. EXPECTED COST PLUS MARGIN APPROACH
   → Forecast costs to satisfy the obligation + appropriate margin.

4. RESIDUAL APPROACH (limited use)
   → SSP = Transaction price - sum of SSPs of other obligations.
   → Only permitted if SSP is highly variable or uncertain.

Allocation example:

Contract: $12,000 annual SaaS deal
Includes: SaaS license + Implementation + Training

Element           SSP       Allocation %   Allocated Price
─────────────────────────────────────────────────────────
SaaS License      $10,000      71.4%          $8,571
Implementation    $2,500       17.9%          $2,143
Training          $1,500       10.7%          $1,286
─────────────────────────────────────────────
Total SSP         $14,000      100%           $12,000

Note: Contract price ($12k) is less than total SSP ($14k) —
the $2,000 discount is allocated proportionally across all obligations.

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Step 5: Recognize Revenue

Over time (straight-line or input/output method) when ANY criterion is met:

□ Customer simultaneously receives and consumes the benefits
  (→ SaaS subscriptions, most services)
□ Entity's performance creates or enhances an asset the 
  customer controls (→ customized software for customer)
□ Entity's performance creates no alternative use AND entity
  has right to payment for work completed to date (→ custom dev)

At a point in time (when control transfers) for all other obligations:

Indicators of control transfer:
□ Entity has right to payment
□ Customer has legal title
□ Entity has transferred physical possession
□ Customer has significant risks and rewards
□ Customer has accepted the asset

Common patterns:

Obligation Type	Recognition Pattern	Measure
SaaS subscription	Over time	Straight-line over term
Professional services (T&M)	Over time	Hours incurred / total estimated
Fixed-fee project	Over time	% complete (input method)
Software license (functional IP)	Point in time	License delivery date
Software license (symbolic IP)	Over time	Ratably
Training (one-time)	Point in time	Date training is delivered
Hardware sale	Point in time	Delivery / acceptance

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Deferred Revenue Scheduling

SaaS Subscription Schedule

For a $12,000 annual contract starting March 1, 2026 (fiscal year = calendar):

CONTRACT REVENUE SCHEDULE
─────────────────────────────────────────────────────────────
Contract:    Acme Corp — Annual SaaS License
Period:      March 1, 2026 – February 28, 2027
ARR:         $12,000 | MRR: $1,000
─────────────────────────────────────────────────────────────
Month        Days    Recognized     Cumulative    Deferred
─────────────────────────────────────────────────────────────
Mar 2026     31      $1,000         $1,000        $11,000
Apr 2026     30      $1,000         $2,000        $10,000
May 2026     31      $1,000         $3,000         $9,000
Jun 2026     30      $1,000         $4,000         $8,000
Jul 2026     31      $1,000         $5,000         $7,000
Aug 2026     31      $1,000         $6,000         $6,000
Sep 2026     30      $1,000         $7,000         $5,000
Oct 2026     31      $1,000         $8,000         $4,000
Nov 2026     30      $1,000         $9,000         $3,000
Dec 2026     31      $1,000        $10,000         $2,000
Jan 2027     31      $1,000        $11,000         $1,000
Feb 2027     28      $1,000        $12,000             $0
─────────────────────────────────────────────────────────────
TOTAL                $12,000

Balance sheet classification:

• Deferred revenue due within 12 months → Current Liability
• Deferred revenue beyond 12 months → Non-Current Liability

Multi-Element Arrangement Schedule

from dataclasses import dataclass
from datetime import date, timedelta
from typing import List, Optional
import math

@dataclass
class PerformanceObligation:
    name: str
    allocated_price: float
    recognition_pattern: str  # "point_in_time" | "over_time_straight_line" | "over_time_pct_complete"
    start_date: Optional[date] = None
    end_date: Optional[date] = None
    completion_date: Optional[date] = None  # for point in time
    pct_complete: float = 0.0  # for % complete method (0.0-1.0)

def calculate_recognized_revenue(
    obligation: PerformanceObligation,
    as_of_date: date
) -> float:
    """
    Calculate cumulative revenue recognized for an obligation as of a date.
    
    Examples:
        # SaaS subscription (over time, straight-line)
        sub = PerformanceObligation(
            name="SaaS License",
            allocated_price=8571,
            recognition_pattern="over_time_straight_line",
            start_date=date(2026, 3, 1),
            end_date=date(2027, 2, 28)
        )
        recognized = calculate_recognized_revenue(sub, date(2026, 6, 30))
        # → $2,857 (4 months of 12)
        
        # Training (point in time)
        training = PerformanceObligation(
            name="Training",
            allocated_price=1286,
            recognition_pattern="point_in_time",
            completion_date=date(2026, 3, 15)
        )
        recognized = calculate_recognized_revenue(training, date(2026, 4, 1))
        # → $1,286 (training already delivered)
    """
    if obligation.recognition_pattern == "point_in_time":
        if obligation.completion_date and as_of_date >= obligation.completion_date:
            return obligation.allocated_price
        return 0.0
    
    elif obligation.recognition_pattern == "over_time_straight_line":
        if not obligation.start_date or not obligation.end_date:
            raise ValueError("start_date and end_date required for straight-line")
        
        total_days = (obligation.end_date - obligation.start_date).days
        elapsed_days = min(
            (as_of_date - obligation.start_date).days,
            total_days
        )
        elapsed_days = max(0, elapsed_days)
        return obligation.allocated_price * (elapsed_days / total_days)
    
    elif obligation.recognition_pattern == "over_time_pct_complete":
        return obligation.allocated_price * min(obligation.pct_complete, 1.0)
    
    return 0.0


def deferred_revenue_balance(
    obligations: List[PerformanceObligation],
    invoiced_amount: float,
    as_of_date: date
) -> dict:
    """
    Calculate deferred revenue and recognized revenue balances.
    
    Returns:
        total_recognized, total_deferred, per_obligation breakdown
    """
    results = []
    total_recognized = 0.0
    
    for ob in obligations:
        recognized = calculate_recognized_revenue(ob, as_of_date)
        deferred = ob.allocated_price - recognized
        total_recognized += recognized
        results.append({
            "obligation": ob.name,
            "allocated_price": ob.allocated_price,
            "recognized": round(recognized, 2),
            "deferred": round(deferred, 2),
        })
    
    return {
        "as_of_date": as_of_date.isoformat(),
        "invoiced": invoiced_amount,
        "total_recognized": round(total_recognized, 2),
        "total_deferred": round(invoiced_amount - total_recognized, 2),
        "obligations": results,
    }

---

Journal Entries

Standard SaaS Subscription

On invoice / cash receipt (upfront annual):

DR  Cash / Accounts Receivable          $12,000
    CR  Deferred Revenue                    $12,000
(Record contract liability at contract start)

Monthly revenue recognition:

DR  Deferred Revenue                    $1,000
    CR  Revenue — SaaS Subscriptions        $1,000
(Recognize ratably each month over 12-month term)

Multi-Element Arrangement

Contract signed, invoice sent — $12,000:

DR  Accounts Receivable                 $12,000
    CR  Deferred Revenue — SaaS             $8,571
    CR  Deferred Revenue — Implementation   $2,143
    CR  Deferred Revenue — Training         $1,286
(Allocate to performance obligation buckets at contract inception)

Training delivered (March 15):

DR  Deferred Revenue — Training         $1,286
    CR  Revenue — Professional Services     $1,286
(Recognize at point in time — training delivered)

Implementation complete (March 31):

DR  Deferred Revenue — Implementation   $2,143
    CR  Revenue — Professional Services     $2,143
(Recognize at point in time — implementation accepted)

Monthly SaaS recognition:

DR  Deferred Revenue — SaaS             $714.25
    CR  Revenue — SaaS Subscriptions        $714.25
($8,571 ÷ 12 months = $714.25/month)

Refund Reserve (Variable Consideration)

When variable consideration is constrained:

DR  Revenue                             $500
    CR  Refund Liability                    $500
(Constrain estimated refunds — reverse when constraint resolved)

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Common SaaS Scenarios

Scenario A: Annual Upfront, No Implementation

Facts: $24,000/year, January 1 start, pure SaaS, no other elements.

Treatment:

• Single performance obligation: SaaS subscription (series)
• Recognize $2,000/month straight-line
• Deferred revenue = $24,000 at inception, releases monthly

Scenario B: Multi-Year Deal with Escalating Pricing

Facts: 3-year deal, Year 1: $10k, Year 2: $12k, Year 3: $14k. Total: $36k.

Treatment options:

1. If pricing reflects SSP each year → recognize at stated amounts per year
2. If pricing includes significant financing → adjust for time value
3. If escalation is NOT commensurate with standalone pricing → level-load:
   • Annual recognized = $36k ÷ 3 = $12k/year (straight-line)

Apply judgment test:

• Does Year 1 price reflect discount (material right)? → New performance obligation
• Is price increase > CPI/market rate? → Consider if reflecting SSP

Scenario C: Free Trial Converts to Paid

Facts: 30-day free trial, then $500/month subscription.

Treatment:

• Free trial = no consideration exchanged → no revenue during trial
• On conversion: new contract created
• Recognize $500/month from conversion date forward
• No catch-up for trial period

Scenario D: Customer Success Bonus

Facts: $100k implementation contract + $20k bonus if customer hits adoption KPI.

Treatment:

• Fixed: $100k
• Variable: $20k bonus (constrain if reversal probable)
• If unlikely to be reversed: include $20k in transaction price from day 1
• If uncertain: exclude until adoption KPI confirmed
• Recognize over implementation timeline using % complete

Scenario E: Contract Modification (Upgrade)

Facts: Original: $1,000/month. Month 6, customer upgrades to $1,500/month for remainder (6 months left) at standalone pricing.

Treatment (new contract method):

• Additional services are distinct and at SSP → treat as new contract
• Original contract continues at $1,000/month through month 12
• New contract: $1,500/month starting month 7

Treatment (prospective modification):

• If additional services NOT at SSP → prospective adjustment
• Remaining consideration: original deferred + upgrade amount
• Recognize over remaining term

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Disclosure Checklist (ASC 606)

Required footnote disclosures for annual financial statements:

ASC 606 DISCLOSURE CHECKLIST
─────────────────────────────────────────────
DISAGGREGATION OF REVENUE (ASC 606-10-50-5)
□ Revenue by product/service line
□ Revenue by geography (if material)
□ Revenue by customer type (enterprise vs. SMB)
□ Revenue by recognition timing (point in time vs. over time)

CONTRACT BALANCES (ASC 606-10-50-8)
□ Opening and closing balances of:
  - Receivables
  - Contract assets (unbilled revenue)
  - Contract liabilities (deferred revenue)
□ Revenue recognized from prior-period contract liabilities
□ Revenue recognized from contract assets

PERFORMANCE OBLIGATIONS (ASC 606-10-50-12)
□ Description of promises and when satisfied
□ Significant payment terms
□ Nature of goods/services transferred
□ Obligations for returns, refunds, warranties

TRANSACTION PRICE ALLOCATION (ASC 606-10-50-17)
□ Aggregate amount allocated to remaining unsatisfied obligations
□ When entity expects to recognize this amount (quantitative or qualitative)
□ Practical expedients applied (if any):
  - Portfolio approach
  - Practical expedient for contracts ≤1 year
  - Sales-based/usage-based royalty exemption

SIGNIFICANT JUDGMENTS (ASC 606-10-50-17)
□ Methods used to recognize revenue over time
□ Methods to determine SSP
□ Variable consideration estimation approach
□ Significant constraints applied

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Common Mistakes & Red Flags

RED FLAG: Booking gross vs. net incorrectly
─────────────────────────────────────────────
Agent vs. Principal analysis:
- Principal: Controls good/service before transfer → GROSS revenue
- Agent: Arranges for another entity → NET (commission only)
Key question: Who bears inventory/credit risk?

RED FLAG: Revenue pulled forward on renewal
─────────────────────────────────────────────
Auto-renewals are new contracts, not continuations.
Do not accelerate deferred revenue into earlier periods.

RED FLAG: Implementation fees recognized at go-live
─────────────────────────────────────────────────────
If implementation is NOT distinct (bundled with SaaS):
→ Allocate to SaaS obligation, recognize over service term.
→ NOT at the go-live date.

RED FLAG: Gross-up for non-refundable activation fees
──────────────────────────────────────────────────────
One-time upfront fees (activation, setup) with no stand-alone value:
→ Defer and recognize over expected customer relationship.
→ NOT as immediate revenue at contract start.

RED FLAG: Variable consideration not constrained
─────────────────────────────────────────────────
If usage-based or contingent fees are included:
→ Only include if highly probable no significant reversal.
→ Reassess each reporting period.

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Quick Reference: Recognition Cheat Sheet

WHAT IS IT?                         HOW TO RECOGNIZE
────────────────────────────────────────────────────────────
Monthly SaaS subscription           Ratably over term (monthly)
Annual SaaS (upfront)               Ratably monthly; defer upfront
Multi-year SaaS (flat pricing)      Ratably over total term
Multi-year SaaS (escalating)        At stated amounts if = SSP
Implementation (not distinct)       Ratably over SaaS term
Implementation (distinct)           % complete (input method)
Training                            At delivery (point in time)
Software license (functional IP)    At delivery (point in time)
Software license (symbolic IP)      Ratably over license term
T&M professional services           As hours/costs incurred
Fixed-fee project                   % complete
Usage/consumption fees              As used/consumed
Minimum guarantees + overages       Guarantee ratably; overage as earned
Refundable deposits                 Liability until non-refundable
Non-refundable setup fees           Defer over customer relationship

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Integration Points

• startup-financial-model — Feed recognized revenue into P&L projections and MRR models
• qbo-automation — Sync deferred revenue schedules with QuickBooks chart of accounts
• kpi-alert-system — Alert when deferred revenue balance drops unexpectedly
• crypto-tax-agent — For token/crypto revenue requiring separate tax treatment
• cap-table-manager — Coordinate when equity-linked consideration is part of a contract

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References

• ASC 606: Revenue from Contracts with Customers (FASB)
• IFRS 15: Revenue from Contracts with Customers (IASB)
• AICPA Software Revenue Recognition Guide (ASC 606 for SaaS)
• Big 4 industry guides: Deloitte "Revenue from Contracts with Customers," PwC "Revenue"