Revenue Management: #1 What does it mean to "recognize" revenue?

Revenue Management: #1 What does it mean to "recognize" revenue?

Earning revenue isn't just about collecting cash from your customers. It's about recording the income correctly and consistently. Revenue recognition is the process of deciding when and how to record revenue in financial statements so that they reflect the true value after the goods or services are delivered.


Today's business models are more dynamic than ever. Subscriptions, long-term projects, bundled products, and usage-based pricing make it challenging to determine when a sale is truly earned.

We will be going through a series of posts on Revenue Recognition and how it works with different industries, starting with,

     What is revenue recognition?

     What are the principles behind the standards?

What is Revenue Recognition?

Revenue Recognition is an accounting principle that defines when and how businesses can record revenue in their books. It ensures revenue is reported only when the company has delivered the promised goods or service, not simply when a payment is received.

For instance, if a customer pays upfront for 12 months of service, the business cannot recognize all of that money immediately. It must recognize it gradually over the period the service is delivered.

To address these challenges, Accounting standards like IFRS 15 and ASC 606 were introduced.


What Do IFRS 15 & ASC 606 Say?

Both IFRS 15 & ASC 606 are closely aligned. They denote that companies must recognize revenue when they satisfy their performance obligation, that is, when they deliver the promised goods or services fully to the customer.

The core principle is:


Quote
"Recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled."

To make this consistent across industries, these standards use a five-step model.


This model helps businesses recognize revenue accurately by following a structured process. Each step ensures that income is recorded only when a company truly earns it by delivering the promise.

Steps

Description

Example

Step 1: Identify the Contract with a Customer

Confirm there is a legal, enforceable agreement with clear payment terms and obligations.

A software company signs a 12-month service contract with a client with proper terms and a clear payment schedule.

Step 2: Identify the Performance Obligations

Break the contract into separate performance obligations that provide unique values.

Contract includes access to software, onboarding support, and monthly training. These are distinct services and are treated separately.

Step 3: Determine the Transaction Price

Calculate the total expected payment, including any discount, bonus, or other variables.

The total contract worth is $12,000, but the customer gets a discount of $1000 for an annual payment upfront. The transaction price becomes $11,000 in this case.

Step 4: Allocate the Transaction Price to the Obligation

Distribute the transaction pricing across the performance obligation based on their standalone selling prices.

If software is usually sold for $9,000, support for $1500 and training for $1500, the $11,000 will be proportionally allocated to each of these.

Step 5: Recognize Revenue When (or As) Obligations Are Satisfied

Revenue is recorded either over time or at a point when the customer gains complete control of the product or service.

In case of software licensing and implementation, the revenue is recognized monthly over 12 months, but the onboarding is recognized as and when it's delivered.

 

This single contract shows how IFRS 15/ASC 606 helps businesses handle complexity like discounts, variable consideration, multiple deliverables and other aspects in recognizing revenue.

Ultimately, these standards require companies to:

Notes

    • Recognize revenue only when the performance obligation is met.

    • While selling services and goods together, consider them as individual deliverables.

    • Allocate the total contract value fairly across all deliverables.

    • Adjust discounts, bonuses, and other variable pricing.

    • Provide an audit-ready document for how and when revenue is recognized.

The bottom line of revenue recognition is straightforward. But while computing, it doesn't look the same when you are dealing with different billing models and while handling hundreds of contracts/transactions.

In the next post, we'll look at where computing revenue recognition gets tricky with some real-time business scenarios. 

      Zoho Campaigns Resources


        • Desk Community Learning Series


        • Digest


        • Functions


        • Meetups


        • Kbase


        • Resources


        • Glossary


        • Desk Marketplace


        • MVP Corner


        • Word of the Day


        • Ask the Experts


          • Sticky Posts

          • Community Learning Series | Digest #5 — September 2020

            Dear customers, We're happy to bring you the September edition of our #CommunityDigest! Keep track of your subscription KPIs right from your smartphone: Last month, we enhanced our Android mobile app to help our customers get daily updates on their business health. We got to know from a lot of customers that this has made their job much more easier because they no longer have to keep a reminder to manually check on the previous day's revenue or activations. If you have not downloaded it yet, here's
          • Community Learning Series | Digest #4 - August 2020

            Dear customers, We hope you're staying safe and healthy. I'm happy to bring you the fourth edition of our #CommunityDigest with some brand-new updates from us. 1. Daily Business Updates (for Android users) The Zoho Subscriptions Android app has got a cool new update: You can now get a push notification to your smartphone that lets you know how many activations and cancellations have taken place, and what's the net revenue for the previous day. The best part is, you can tell the app when exactly you
          • Community Learning Series | Digest #3 - July 2020

            Dear customers, We hope you're staying safe and healthy. We're glad to bring you the July edition of our #CommunityDigest. New community members can view our previous newsletters here. This time, we have two major updates and three interesting topics for you: 1. Zoho Subscriptions Developer Community Since the inception of Zoho Subscriptions, our team believed that the recurring billing platform we provide should be able to offer an extensive API library that empowers businesses to automate most
          • Introducing: Community Learning Series | Digest #1 - May 2020

            Dear customers, We hope you are staying safe and healthy. Helping businesses manage their customer subscriptions more efficiently has always been, and always will be, our goal at Zoho Subscriptions. We strongly believe this is possible if we grow together as a community and share what we know with each other. To nurture this shared learning experience, here is our brand-new Community Learning Series! ​ Welcome to the first edition of our digest! Each edition of our community digest includes guides

          Zoho CRM Plus Resources

            Zoho Books Resources


              Zoho Subscriptions Resources

                Zoho Projects Resources


                  Zoho Sprints Resources


                    Zoho Orchestly Resources


                      Zoho Creator Resources


                        Zoho WorkDrive Resources



                          Zoho CRM Resources

                          • CRM Community Learning Series

                            CRM Community Learning Series


                          • Tips

                            Tips

                          • Functions

                            Functions

                          • Meetups

                            Meetups

                          • Kbase

                            Kbase

                          • Resources

                            Resources

                          • Digest

                            Digest

                          • CRM Marketplace

                            CRM Marketplace

                          • MVP Corner

                            MVP Corner




                            Zoho Writer Writer

                            Get Started. Write Away!

                            Writer is a powerful online word processor, designed for collaborative work.

                              Zoho CRM コンテンツ






                                ご検討中の方

                                  • Recent Topics

                                  • Time Entries in Analytics

                                    I am trying to import a zoho sheet into zoho analytics. In my sheets one of the columns has "time Entries" in this "format HH:MM am/pm" example 11:00 PM. After import, i noticed that analytics converted the time to "00 Jan 1900 23:00:00".. how do i maintain
                                  • Amazon invoice in Zoho Books

                                    I have just made my first few sales on Amazon India. Amazon Seller account generates invoices for the sales made on Amazon. These invoices are sent to customers also. Now when I was only making offline sales, I used to create Invoices in Zoho Book. Now
                                  • Zoho Creator Upcoming Updates - November 2025

                                    Hello everyone, Welcome to your monthly roundup of new features and enhancements! We hope you've already taken a look at Release Projection 2—it details the features coming your way for the rest of the year. And this month, we're excited to start rolling
                                  • Table dimensions

                                    I try changing the dimensions of the table on my computer but it doesn't change. Do I have to be a premium member or does it only work on the app?
                                  • Zoho Webinar + HubSpot : Simplifiez la gestion de vos données de webinaires

                                    Les webinaires sont aujourd’hui essentiels pour interagir avec vos prospects et vos clients. Cependant, la gestion des données entre plusieurs plateformes peut vite devenir complexe. Grâce à la nouvelle intégration entre Zoho Webinar et HubSpot, vos outils
                                  • I am trying to give access to one of our educators access to 3 forms in Zoho and she is not able to view the data - Access issue

                                    Hi Team, When I try to provide read access to one of our educators on Zoho for Pre-training , post training and Impact survey forms submit form access which also allows them to read , it does not show them data
                                  • How to book GST paid in zoho books

                                    hi, i am a new user to Zoho books and not able to book GST paid in books, kindly suggest how i can book it in books. thanks, siddharth
                                  • PUNJAB NATIONAL BANK (CORPORATE) INDIA - NOT AVAILABLE IN BANKING

                                    Dear sir, Kindly fix it. PUNJAB NATIONAL BANK (INDIA) is available but PUNJAB NATIONAL BANK (CORPORATE) is not available. Kindly enable this banking since we need to categorize the entries. Regards, Sanjay Jena email id/ user id : travewithmerchant@
                                  • Employment Contract / HRMS Documents - Zoho People

                                    How do I create customized HR documents for disbursal from Zoho People ? Example, say offer letters ? appointment letters ? Memos ? We want to be able to preset these in one or ther other form and issue them to employees who are in Zoho People.
                                  • Is it possible to create a word cloud chart in ZoHo Analystics?

                                    Hi there, I have a volume of transaction text that I would like to analyse using word cloud (or other approcah to detect and present word frequency in a dataset). For example, I have 50,000 records describing menu items in restaurants. I want to be able
                                  • Kaizen #216 - Actions APIs : Email Notifications

                                    Welcome to another week of Kaizen! For the last three weeks, we have been discussing Zylker's workflows. We successfully updated a dormant workflow, built a new one from the ground up and more. But our work is not finished—these automated processes are
                                  • Facturation électronique 2026 - obligation dès le 1er septembre 2026

                                    Bonjour, Je me permets de réagir à divers posts publiés ici et là concernant le projet de E-Invoicing, dans le cadre de la facturation électronique prévue très prochainement. Dans le cadre du passage à la facturation électronique pour les entreprises,
                                  • Your bot just got smarter: AI-Powered routing that reads between the lines

                                    What if your bot could tell the difference? Between a visitor who just needs a quick answer, someone actively comparing options, and a frustrated customer one click away from leaving? Most bots can't. They deliver the same response to everyone, missing
                                  • Weekly Tips : Master Keyboard Shortcuts in Zoho Mail

                                    If you spend a lot of time managing emails, switching between your mouse and keyboard can slow you down. Whether you are replying to clients, organizing your inbox, or searching for messages, every second counts. So, how can you streamline your email
                                  • Introducing custom lookup fields in the Tickets, Contacts, and Accounts modules

                                    Hello all, We are excited to announce a new enhancement that will empower you to further customize the Tickets, Contacts, and Accounts modules. Now, you will be able to create custom lookup fields in your Tickets, Contacts, and Accounts layouts for more
                                  • DKIM cannot be enabled for the domain as no verified default selector present

                                    Can't get the DKIM working. May you please check my account (nksy.us) to see what's wrong?
                                  • Contacts per department

                                    Hello, Is it possible to limit Contacts to a Department? Thanks
                                  • How to restrict user/portal user change canvas view

                                    Hi , I would like to restrict user / portal user change their canvas view because I hide some sensitive field for them. I dont want my user switch the canvas view that do not belong to them But seems Zoho do not provide this setting?
                                  • Collections Management: #3 Tackling Payment Failures

                                    Sam refreshed the dashboard. "Payment failed". Same customer. Same subscription. This is happening for the third time. He sends a usual email: "Your renewal payment failed again. Could you please check and retry?" A couple of days passed, and there was
                                  • How do I increase the email attachment size in Zoho CRM ?

                                    It looks like I'm limited to 10MB when sending an attachment using the email widget on a record in Zoho CRM. Is there a way to increase the size? Or can I use some other tool? From what I'm reading online, I'm maxed out at 10MB. Any insight would be greatly
                                  • Custom Field in Zoho Projects pulling into Analytics

                                    We have a client that we have built our their new business process using Zoho Projects, and we have build a lot of custom fields with their their Projects where they are capturing specific data points that we want to be able to track and pull data, as
                                  • Bookmark Loading is Buffering

                                    Hi, i clicked on the bookmark tab, around yesterday and since then it's been constantly buffering and doesn't allow me to access the mail's i have tried login in and out but of no help also trying to share a screenshot of the issue around 232 kb size,
                                  • Request to remove domain "greentechcoatings.vn" from previous Zoho account

                                    Hello Zoho Support, I would like to register the domain "greentechcoatings.vn" in my new Zoho Mail account, but I receive the message "This domain is already associated with another account". Please remove the domain from any previous/unknown account
                                  • WhatsApp Channels in Zoho Campaigns

                                    Now that Meta has opened WhatsApp Channels globally, will you add it to Zoho Campaigns? It's another top channel for marketing communications as email and SMS. Thanks.
                                  • Zoho sign and creator error message {"code":9043,"error_param":"Checked by","message":"Extra key found","status":"failure"}

                                    Good day, I receive the error message: {"code":9043,"error_param":"Checked by","message":"Extra key found","status":"failure"} when running below code from creator to sign, void TestForSign(int ID) { //Fetch Template Details (Optional, for dynamic mapping)
                                  • Download a writer template as .docx instead of .pdf.

                                    I have been trying to implement a feature to download a writer template as a .docx and got it working partly but it isn't good. Earlier I checked our code and I saw openurl("https://crm.zoho.com/crm/org121314/specific/Template.do?action=print&step=pdfPreview&id="
                                  • Allow the usage of Multi-Select fields as the primary field on "Layout Rules"

                                    We want to force our users to enter some explanation strings when a multi-select field has been utilized. I can't understand the reason for the usage restriction of Multi-Select fields as a primary field. This is a simple "Display hidden mandatory field
                                  • Ask the Experts 25: Experience the full spectrum of Zoho Desk’s autumn and spring releases for 2025

                                    Hello Everyone, We’re on the 25th episode of our ATE series! It's a true milestone in our live community interactions! It’s been an amazing journey since we started in October 2018. Zoho Desk has come a long way, evolving with the support of a wonderful
                                  • WriterTh

                                    After every space Writer goes to capital letters mode in my Android tablet. The cap mode stays till the second letter is typed in the word then it comes to normal mode.
                                  • Extract Archived Projects using Zoho Projects API

                                    In my organization we archive the projects when they are already completed, charged, invoiced, so that only those that are still pending process remain active. I need to access all projects (active and archived) from an external system, but the API v3
                                  • Pincode based Product Restriction

                                    we have different types of products. 1) Very bulky items like plywood. 2) Too delicate items like glass These type of products we want to sell to local customers. Other products we want to supply all over India. There should be an option to restrict products
                                  • Ask the Experts: Five-hour live Q&A session with Zoho WorkDrive product experts

                                    Have questions about WorkDrive 5.0? Let’s talk! We recently launched Zoho WorkDrive 5.0, packed with powerful updates to help your team work smarter, stay secure, and get more value from your business content. From content-centric workflows and AI-powered
                                  • File upload support for subforms

                                    Dear All, Subforms help you add and track data related to your CRM records. We've always supported most of the commonly used field types in subforms, so as to cater to your business requirements. Now we're happy to extend support to file upload fields.
                                  • Circular record relationship in CRM

                                    Given there is a lookup in custom module Transactions creating a related list on the chosen Contact record. I. e. a lookup field on Transactions module points to Contacts. The related list on a Contact record can thus have have many transaction records.
                                  • Is it possible to pull the Zoho desk data into Zoho analytics in real time

                                    Hi - I am looking to add more dashboards and reports of Zoho Desk in analytics. I see there is a schedule to pull the data into analytics, but I'm wondering if there is an option to pull the data in real time instead of a specific interval?
                                  • Enhance productivity with the revamped Zoho Sheet View

                                    Hello folks, For some time now, you've been able to use the Zoho Sheet View to quickly edit multiple records or to insert a batch of new records. Its tabular interface allows users to engage in these tasks productively. Despite this, the existing Sheet
                                  • How to set value of dropdown field to variable

                                    For the life of me, I can't figure out why the following code won't set input.status to the previousSelection. Steps to reproduce: 1. Click input.complete 2. input.status dropdown updates from '1-Backlog' to '4-Done' 3. Click input.complete again to deselect
                                  • [Product Update] TimeSheets module is now renamed as Time Logs in Zoho Projects.

                                    Dear Zoho Analytics customers, As part of the ongoing enhancements in Zoho Projects, the Timesheets module has been renamed to Time Logs. However, the module name will continue to be displayed as Timesheets in Zoho Analytics until the relevant APIs are
                                  • [WEBINAR][MEA] Learn how to control your inventory and multi-channel sales with the Zoho Inventory & Zoho Books integration

                                    Hello there, We are hosting an exclusive live webinar tailored for businesses across the Middle East and African countries, where you'll learn how to take full control of your inventory and multi-channel sales while keeping your accounting perfectly in
                                  • Less clicks, more connection – the usability edge of Zoho Desk

                                    Imagine joining a new workplace, eager to prove your skills, partner with peers, learn new tools, and build a strong foundation for your career. The standards you've set could drive pressure into your head. You now discover the organization is using Zoho
                                  • Next Page