Revenue recognition

GAAP compliant revenue recognition


Marjorie Stern Jackson

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Mastering GAAP compliant revenue recognition with ScaleXP

Ensuring that your revenue recognition is GAAP compliant is crucial for your business when fundraising and talking to investors.  GAAP (Generally Accepted Accounting Princples) provides a standarised framework that companies follow to ensure consistent and accurate financial reporting.  At ScaleXP, we are committed to making this simple and easy.

Understanding GAAP compliant revenue recognition

Under GAAP, revenue must be recognised when it is earned and realisable, which often involves meeting specific criteria outlined in the guidelines. This ensures that your financial statements accurately reflect your company’s financial performance.

ASC 606 is the relevant revenue recognition standard issued by the Financial Accounting Standards Board (FASB) in the United States. It sets out the principles for recognising revenue under GAAP from contracts with customers.

ASC stands for “Accounting Standards Codification.”   ASC 606 was developed by FASB working in conjunction with the International Accounting Standards Board (IASB) an independent private sector body that develops International Financial Reporting Standards (IFRS), with the intent of simplifying revenue recognition in the US and converging guidance internationally.

The five steps to GAAP compliant revenue recognition

To achieve GAAP compliant revenue recognition, you must follow a five step model as follows:

  1. Identify the contract with the customer.
  2. Identify the performance obligations in the contract.
  3. Determine the transaction price.
  4. Allocate the transaction price to the performance obligations.
  5. Recognise revenue when (or as) the entity satisfies a performance obligation.

GAAP revenue recognition guidance under ASC 606 applies to all types of revenue-generating transactions, including the sale of goods, services, and intellectual property licenses.

Why GAAP compliant revenue recognition matters

Adhering to GAAP compliant revenue recognition principles is essential for several reasons:

  • financial accuracy: ensures that your financial statements are accurate and reliable
  • investor confidence: builds trust and confidence among investors and stakeholders
  • regulatory compliance: helps you meet regulatory requirements and avoid penalties
  • performance insights: provides valuable insights into your company’s financial health and operational performance.

How ScaleXP supports GAAP compliant revenue recognition

At ScaleXP, we understand that achieving GAAP compliant revenue recognition can be challenging. Our platform offers a comprehensive suite of tools designed to simplify this process:

  • Automated Revenue Tracking: Seamlessly track revenue from multiple sources and ensure it aligns with GAAP guidelines.
  • Customizable Reporting: Generate detailed, GAAP compliant financial reports with ease.
  • Real-Time Analytics: Access real-time data and analytics to monitor revenue recognition and financial performance.

Why use ScaleXP for GAAP compliant revenue recognition

SME accounting systems including Xero and QuickBooks do not contain all the functionality necessary to efficiently comply with GAAP revenue recognition rules, leading to tedious, time consuming manual work and the potential for error. 

Add-on software, such as ScaleXP, can help. ScaleXP imports all invoices directly from the accounting system and uses a sophisticated series of text recognition algorithms to fully automate revenue recognition. The setup process is easy, and in most cases, you can have a full revenue recognition schedule within an hour.

Click here to see if ScaleXP integrates with your accounting platform. 

If your company operates outside the USA, click here to read our article on revenue recognition under IFRS 15, issued by the International Accounting Standards Board (IASB).