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. 
    • 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

    Nederlandse Hulpbronnen


      • Recent Topics

      • Add "Fetch Composite Item" Action for Inventory

        I want to make a Flow that uses information returned in the GET call for Composite Items, and it's not currently available in Zoho Flow. Please consider adding this functionality.
      • Inactive Items - Make Less Prominent by Default

        Currently, when one marks an Item as "Inactive", it really doesn't do much of anything to hide it or get it out of the way. Search and reporting within Finance should, by default, hide inactive Items from standard reports, searches, etc. If one specifically
      • This domain is not allowed to add. Please contact support-as@zohocorp.com for further details

        I am trying to setup the free version of Zoho Mail. When I tried to add my domain, theselfreunion.com I got the error message that is the subject of this Topic. I've read your other community forum topics, and this is NOT a free domain. So what is the
      • Can no longer export as pdf

        In NOTEBOOK I am no longer able to export notes to pdfs as I used to be able to. When I hit that command it asks where I want to send it, but no matter what I chose there is no pdf attachment that shows up in order to send. Nothing happens.
      • Emails are going to notification folder and not in inbox

        emails are going to notification folder and not into inbox
      • How can I prevent the Zoho Vault extension from automatically logging me out?

        Hi, I want the Zoho Vault Chrome extension to never log out. How can I do this? It only allows me to log out for 1 week, and the same applies to the Android app.
      • Zoho CRM App - Links

        Hi  Is there are plan for making Custom Links available in the Zoho CRM Android App? I can't see them being added? Thanks Gene
      • Templates

        Trying to sort out / get rid of unwanted invoice templates, the error msgs are not at all helpful. Surely it's easy to amend the error msg by including a list of the names of the customers / vendors that use it, denying deletion or making it inactive
      • Contacts limit in basic vs standard - what counts? Are customers contacts?

        I’ve been using books for a number years for my small business. I only ever work with 20 clients at any given time. I do purchase services from a number of vendors to run my business, so there are some comtacts there too. I used to use the basic package,
      • Finding missing records

        I have a challenge and I am not really sure where to start with it. I can't find any similar threads on here, can anyone help: I have two forms, FormA and FormB. Both forms have records that contain a field called Job_Number. What I am trying to achieve
      • Read webpage - MSXML2.ServerXMLHTTP

        I have the following VBA script, put together from various sources (mainly zoho forum/help/support, so it once worked, I guess): private Sub GetListOfSheets() Dim url As String Dim xmlhttp As Object Dim parameters As String Dim html As String range("B1").value
      • Addin Support in Zoho Sheet

        Is there any addin support available in zoho sheet as like google marketplace to enhance productivity by connecting with other apps, providing AI data analysis, streamlining business processes, and more?
      • Prevent Unapproved Quotes from Exporting to Zoho CRM Finance Module

        Is it possible to prevent unapproved quotes in Zoho Books from being exported from Zoho Finance module inside Zoho CRM?
      • ZOHO BOOKS - RECEIVING MORE ITEMS THAN ORDERED

        Hello, When trying to enter a vendor's bill that contains items with bigger quantity than ordered in the PO (it happens quite often) - The system would not let us save the bill and show this error: "Quantity recorded cannot be more than quantity ordered." 
      • Updates for Zoho Campaigns: Merge tag, footer, and autoresponder migration

        Hello everyone, We'd like to inform you of some upcoming changes with regard to Zoho Campaigns. We understand that change can be difficult, but we're dedicated to ensuring a smooth transition while keeping you all informed and engaged throughout the process.
      • Process between CRM and Campaigns to ensure double opt-in contacts?

        I would like to ask for a few clarifications to ensure we fully comply with best practices and legal requirements: According to the documentation (Zoho Campaigns CRM sync – Default option), the best and recommended way to sync contacts is by using the
      • What's New in Zoho Inventory | August – October 2025

        Hello customers, The last quarter has been incredibly productive! We've released a powerful slate of new features and enhancements in Zoho Inventory designed to give you better control, greater efficiency, and expanded functionality across your inventory
      • Search not working!

        I have items in my notebook tagged but when I search for a tag nothing comes up! Any fix for this?
      • Let's Talk Recruit: Meet Zia, your all-in-one AI assistant (Part-2)

        Welcome back to Let’s Talk Recruit series. In Part 1, we introduced Zia and how AI is reshaping the way recruiters work. This time, we’re taking a closer look at how far Zia has come and how each update continues to simplify your everyday tasks. When
      • Zoho Developer - Feature Request Platform

        Zoho Developer is one of the most underatted platform in zoho ecosystem, however, it may just be what zoho needs to welcome more people to use Zoho Services. The more developers you have creating zoho creator applications and zoho extensions the more
      • Last/Previous month in relative date filter

        In the relative date filter, what is the difference between "Last 2 months" and "Previous 2 months"? So, if we are on 25-July, then is my understanding correct of the following: Last 2 months :=:      25-May~24 July Previous 2 months :=:     01-May~30-June Thanks.
      • Tags get removed from notes on mobile

        I don't know why this keeps happening even after all these app updates but if you log out and log back into the app or you reinstall it, all the tags you assigned to your notes get taken off, but if you go on the desktop version the tags are still there.
      • Show Zoom Link in Recipient's Calendar

        We set up meetings within a record, selecting the "Make this an online meeting".  We use Zoom. Most of the recipients go to their calendar (usually Gmail or Outlook, corporate) to join the Zoom meeting, but there is no Zoom link in the calendar. Can this
      • How to fetch custom fields for time entries in Zoho Project API v3

        In the previous Zoho Projects REST API, we were able to retrieve custom field details for time entries, including picklist options, using the endpoint: GET /restapi/portal/[PORTAL_ID]/timesheetcustomfields In the new Zoho Projects API v3, we tried using
      • VAT rates - exempt and out of scope

        Good Evening, UK based company here. I am a bit confused in respect of setting up VAT rates for exempt goods and services; at present I am simply leaving the VAT rate blank in the transactions in order to prevent any VAT appearing in the VAT return. When
      • Zoho is blocking emails I subscribe to from one sender

        About 4 months ago I stopped receiving newsletters that I subscribe to from @thedispatch.com. They tell me that zoho's server is blocking them. I've added them to my contacts list, but they're not even reaching my inbox. I don't know how to troubleshoot
      • Introducing Lead Capture: Empower exhibitors to capture leads effortlessly

        Events provide a great opportunity for exhibitors to generate awareness and engage with potential customers. Efficiently distributing attendee information to exhibitors through a seamless and secure way is of paramount importance. Introducing Lead Capture
      • Work Order Creation Issue

        Dear Team, I would like to inquire about the daily limit for Work Order creation in Zoho FSM. Yesterday (02/05/2025) at around 6:30 PM GST, I attempted to create a Work Order, but I have been unable to do so since then. Please find the attached image
      • Accessing shared mailboxes through Trident (Windows)

        Hi, I have a created a couple of shared mailboxes. The mailboxes are showing up on the browser based Zoho workplace, but I cannot seem to figure out how to access my shared inboxes through Trident (Windows). Am I missing something or is this feature not
      • URGENT: ChatGPT Extension Failing With “gpt-3 Access Error” (Priority Support)

        Appreciate support reviewing this urgently. I am a Priority Support member and need immediate clarification on a recurring issue involving the ChatGPT extensions inside Zoho Desk. Both extensions — including the version created and published by Zoho —
      • Server error when trying to Data > Sort > Custom Sort

        Been using Data > Sort > Custom Sort for a while, now it has suddenly stopped working. When selecting the same data range and trying to execute, I get "Sorry! There was a problem saving your last edit. Please try again."
      • Zoho Desk iOS update: Custom buttons, follow/ unfollow option on tickets

        Hello everyone! In the most recent Zoho Desk iOS app update, we have brought in support to access the custom buttons configured on web app(desk.zoho.com). Using custom buttons you can seamlessly execute predefined actions directly from their mobile devices,
      • Zoho pdf suit

        Pl. design products with following feature: 1. Please add all features given in Ilovepdf website to work on pdf files. It is mandatory to use pdf in court work. 2. Courts have prescribed New Times Roman, pl. add this font as well 3. Indexing, signature
      • Zoho Not Working

        Today Zoho not wokring
      • Dynamically autofill fields with URL parameters

        I have a zoho form embedded in my organization's WP website. Our users find their account with a search tool, and then can select to open this page with the embedded form. The URL of the page holds the parameter that I need, but I cannot figure out how
      • User Automation: User based workflow rules & webhooks

        User management is an undeniable part of project management and requires adequate monitoring. As teams grow and projects multiply, manual coordination for updating users & permissions becomes difficult and can give way to errors. User automation in Zoho
      • Integrate Projects for Desk KB article release tasks

        Could you please look into the possibility of integrating project tasks for Zoho Desk article release processes? We are looking for an internal integration between Zoho Projects and Zoho Desk's KB article drafting, reviewing and releasing tasks. We could
      • Issue in Annual Leave

        We created a policy to credit 21 days at the Start of the Year An employee has taken 16 days of leaves thought the year, so we expect to see 5 Leaves remaining right? But Zoho People is Showing 12 Days of Leave Balance Available If we check the Leave
      • Use the searchBy parameter to find user by email address

        I'm trying to find a user is Zoho Desk via the Api. In the documentation I see that there is the possibility to add a searchBy parameter in the request. But I can't find how the search values should be formatted. I've tried multiple things and get either
      • Zoho CRM Community Digest - September 2025 | Part 2

        Hello Everyone! Mid-September vibes: fresh tips, smart hacks, and practical Zoho CRM updates all in one place. Let’s dive in. Product Updates: The All-New Address Field! The new Address field type makes it easier to capture complete addresses in one structured
      • Next Page