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Sorting Out Sales

- Updated September 2, 2010

Changes to revenue recognition rules may be beneficial but will lead to accounting headaches that new software can relieve.

Last September, regulators issued new revenue recognition rules that allow companies to book product and service sales separately—a boost for the balance sheet, but a big accounting hassle. Prior to the new rules, effective 1Q of fiscal 2011, if a company sold a product bundled with a service contract, the revenue was allocated over the length of the service contract. In fact, even companies that offered services for free still had to book revenue from the sale as if it came in over the course of the contract.

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