How to recognize revenue when amount is not fixed?

[jiji2006]

Hi, I have a question on revenue recognition. Under US GAAP, if the license w/support fee has a fixed and variable portion, I think that this is one unit of accounting and so, the total fee amount is not fixed. Since the amount is not fixed, does this mean I take revenue only when I bill out the license amount? Because I think that the other 3 criteria (arrangement, delivery occurred, collectible) are met when I finish calculating the final monthly license fee and issue the bill. Any help is much appreciated. Thanks!

 

[Steve-LevelUp]

That approach is the correct approach. Presuming the variability is the number of licenses, you can then only bill once you know how many licenses you need to bill for. You should not book revenues for an uncertain amount.

 

[Drmdcpa]

If a portion is fixed, it is known and not variable. For example I sell a license for $10k plus support fees to be determined and billed monthly. The $10k is income as long as it is collectible. The support fees are the only variable unknown that are only revenue when eventually known in amount to be collectible.

 

[pndaccountants]

If it is not possible to reliably measure the outcome of a transaction involving the provision of services (perhaps because the transaction is in its very early stages) then revenue should be recognised only to the extent of costs incurred by the seller