Missed Tensoft’s complimentary webcast on “Revenue Recognition for Services and Contracts”? Here’s an excerpt from that, followed by a recording of the entire event:
“So what we will be looking at today is the various types of services and contracts that technology companies run into, so time and materials type of contracts, work on the hourly or daily sort of rate, fixed fee contracts where we got a set fee for a given project or deliverable, we account for that. We look at bundled services, products and or software. I will briefly look at the milestone method, funded R & D and talk about the loss contracts.
While we are talking about services and contract accounting today we still have to keep in perspective that the four general principles of revenue recognition still apply and need to be met for us to recognize revenue.
When we look at the services contracts that we are going to be talking about today, we really flow into four general categories.
Time and Materials Contract– We see this typically for services that are sold on an hourly or daily basis, with the expenses of materials. I think in the technology world, we see more of those as time and expense but people still refer to them as time and materials for more of a less virtual business model in the past. Then there is fixed fee arrangements where we have a set of fee for a variable amount of effort in order to provide a deliverable or some sort of project, or service to a customer. Then multiple element arrangements where we have either fixed or time and material types services contracts with other elements and finally in software world we have services that are essentially the functionalities of a software product and we have to look those typically as one element rather than multiple elements because they really don’t function independently”.