The new ASC 606 standard for revenue recognition will change how companies book revenue and expenses. This came into effect for private companies in the US beginning December 15th, 2018. By December 31, 2019, all companies across the globe need to enforce these standards.
In the past, revenue recognition standards differed between US and international organizations. These rules needed to be updated due to the varying ways they were being implemented.
The objective of the new ASC 606 revenue recognition standard was to adopt an international standard and outline a common way to recognize the revenue. The new standard provides framework to drive consistency in financial reporting, improve comparative analysis, and reporting.
ASC 606 and QCommissionKnown as ASC 606 – Revenue from contracts with customers, these accounting standards layout guidelines for revenue processes such as contracts, quotes, orders, etc. This results in many companies needing to re-evaluate when and how they account their revenue and whether sales and its related expenses need to be booked differently.
ASC 606 breaks down the contract process into the following 5 steps:
- Identify the contract with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price
- Recognize revenue when or as the entity satisfies a performance obligation
The new standard impact various costs associated with contracts such as legal fees, preparation costs etc. More importantly, the new standard directly impacts sales commissions.
The new ASC 606 standard impacts the sales commissions in the following areas. Companies paying sales commissions must take a note of the following changes in order to remain ASC 606 complaint:
- Sales Commissions Tracking: Previously, keeping track of commissions at the rep level is enough. With the new standard, the transaction level as well as the customer level need to be tracked as well.
- Commissions Expense Timing: Previously, commission used to be tag as an expense when it was paid out. With the new standard, commissions need to be tagged as an expense over a time period matching the delivery of services to customers.
- Types of Commissions and Capitalization: Not all sales commissions/incentives qualify for capitalization. The pre-condition for capitalization is that associated costs should be ‘incremental’ and ‘recoverable’.
- Contract Duration and Amortization: The sales commissions should be amortized based on the entire expected duration of the contract (not just initial period). This requires an estimation of the average lifetime of the contract.
- Recognizing as Immediate Expense: Commissions for the contracts that have a duration of one year or less can be booked for immediate expense rather than as an amortization.
QCommission is a powerful, flexible sales commission software. It calculates salespeople’s compensation accurately and timely.The QCommission team always strives to provide a great sales commission product re-enforced by exceptional customer service.
QCommission, the sales commission software, offers a commission expense recognition process and ensures compliance under the new ASC 606 revenue recognition standard.
Contract ManagementQCommission provides the ability to define the contract terms such as contract start date, duration of the contract, renewable frequency, etc.
QCommission provides the ability to define which incentive payouts can be capitalized/amortized.
Amortization Schedule Report
Calculate detailed amortization schedules based on contract terms and dynamically/automatically adjust the balances.
Flexible Report Library with Security
An entity QCommission provides a lot of built-in reports that can cater to more than 65 industry needs and provides flexibility to create dynamic reports as well.
QCommission helps compensation administrators and finance teams by providing the right options and tools to automate the approaches needed to be compliant with the ASC 606 Revenue Recognition Standards.