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Short Term Contracts & Topic 606

 

"Is there any impact to revenue recognition under topic 606 if a company has only 3 month contracts with their customers? Do we have to analyze bundled contracts of less than 1 year in duration?"

This question was asked at a recent webinar, now available on-demand:

"Topic 606 Revenue Recognition: A Deep Dive into the 5 Steps to Recognition"

Please add your thoughts about it below. Thanks!

Answers

Topic Expert
Doug Thompson
Title: Director of Revenue
Company: Castlight Health
(Director of Revenue, Castlight Health) |

It may lead to more unbundling of deliverables rather than keeping them all together and recognizing ratably. Depends on specific circumstances of course.

Jeff Tchir
Title: Founder and Technical Advisor, RevRec.NE..
Company: RevRec.NET
LinkedIn Profile
(Founder and Technical Advisor, RevRec.NET, RevRec.NET) |

Under the new standard, there is no rule about the length of time to presume one contract is linked to another. However, the language is similar to what we have today in that if contracts are entered into at or near the same time, they should be treated as a single contract. Three months is not that long and could be considered "near the same time" is certain contexts, particularly if the pricing and other elements of the contract have already been negotiated for periods subsequent to the first three months.

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