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Revenue Recognition Impact Around Product Acceptance (Webinar Attendee Question)

For revenue recognition purposes, what if at the time of invoicing you do not have acceptance from the customer and do not know when acceptance will occur? Does that effect recognition?

This question was asked by an attendee during the Proformative webinar "Taming Revenue Recognition to Ensure Compliance" held on December 6, 2012.  Please join the discussion and add your insights below.

A video of the webinar can be viewed here: https://www.proformative.com/resources/webinar-video-taming-revenue-recognition-ensure-compliance-0

Answers

Steven Olson
Title: Managing Partner
Company: New Venture Support, Inc.
(Managing Partner, New Venture Support, Inc.) |

Rev rec is not dependent on invoicing. If you invoice before customer acceptance, you must credit Deferred Revenue Liability, not Revenue. When you have customer acceptance you can then move that balance from liability to revenue.

Scott Page
Title: Founder
Company: The Fractional Controller, Inc.
(Founder, The Fractional Controller, Inc.) |

I agree with Steven. Your two choices are to either defer revenue recognition at invoicing or defer invoicing until corroborating evidence of acceptance is received.

Andrea Bornschlegel
Title: Fractional CFO/Controller
Company: Financial Consultant
(Fractional CFO/Controller, Financial Consultant) |

Agreed, with a caveat that some customer acceptance matters are so routine they can be deemed "perfunctory" and revenue may be able to be recognized prior to official acceptance. If the acceptance language is boilerplate in a contract and simply says it will function according to product specifications, and you have sufficient history that it will, you may be able to recognize the revenue. If your customer has explicitly asked for an acceptance period, acceptance criteria has been developed specifically for that customer (negotiated), the PO itself mentions the acceptance terms (other than boilerplate), you don't have sufficient history with that product, etc., deferral would be needed. You should have a rev rec policy that addresses this.

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