Understand revenue recognition in QuickBooks Online

Learn why revenue recognition is important when you do your accounting in QuickBooks Online.

Revenue Recognition is a generally accepted accounting principle (GAAP) that defines how and when you recognize revenue. It lets you record a payment for a product or service you’ll deliver in the future and recognize the revenue over time.

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Why Revenue Recognition is important

The revenue recognition standard ASC 606 affects all entities—public, private, and not-for-profit regardless of industry. It helps businesses of all sizes recognize revenue consistently over time. More info on the ASC 606 GAAP principle can be found at the Financial Accounting Services Board’s page on revenue recognition.

Business models that may use revenue recognition

Here are some examples of businesses in various business models that may use revenue recognition.

• Subscription based services. For example, a wine club that charges a membership fee on top of subscription fees and wants to recognize the membership revenue upfront but defers wine subscription revenue until they can deliver to the customer.
• Project-based or contractor services. For example, a project-based business or a contractor, who charges their customers upfront but wants to recognize some of the revenue only when that part of the job is complete.
• Software subscriptions. For example, a hosted software company that charges US $ 240 yearly and recognizes US $ 20 every month until the software agreement ends.
• E-commerce services. E-commerce businesses receive payment upfront but recognize the revenue upon delivery.
• A pre-paid billing model. For example, an insurance company charges an annual premium at a discount, but the revenue is recognized monthly.
• Consulting services and law firms. For example, a law firm that charges its client a retainer fee before rendering services and wants to recognize the revenue only when the work is complete.

Related links

• Revenue Recognition (Financial Accounting Standards Board)
• Turn on revenue recognition in QuickBooks Online
• Set up a revenue recognition schedule in QuickBooks Online
• Choose between cash and accrual accounting methods in QuickBooks Online