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Revenue recognition for training companies


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Like most other businesses, training companies are charged with proper and accurate revenue recognition. We’re talking about a business that might offer a single or multi-part training session in just about any field or industry. So, if your business provides training or consulting services, do you have the proper business system in place? Is your training business recording revenue in the period in which it is earned? Well, the actual application of recording is anything but straightforward. And, like most other businesses, training companies regularly receive payment for services in advance.  The Financial Accounting Standards Board (FASB) has implemented its new standard, which states that revenue is recognized when control of the goods or services transfers to the customer.

However, for a company with short term or seasonal training sessions, the process involves a few additional and necessary steps. Take a look at the following scenarios:

  1. Suppose Customer A signs up with George Jetson’s DIY Build Your Own Sprocket Workshop, for a 6-week training session, and pays in advance and in full. In this case, receipt of the actual training doesn’t actually occur in one instance, or even right away. Instead, the workshop doesn’t start for another 3 months. Since you’ve received payment well in advance, the question is, when does the original transaction get recorded?

  2. Or, suppose Customer B also signs up for the same DIY Sprocket Workshop, but opts for the available payment plan which requires a small down payment with the balance to paid via installments. When does the revenue actually get recognized? What if the service agreement allows for a discount off a future Sprocket Workshop if the Customer pays the outstanding balance ahead of time? How does that early, unscheduled payment get recorded?

  3. Here’s another one: Suppose Mr. Jetson wants to fill the last remaining seats a few days before the first Sprocket training session begins; and, in an effort to fill those open seats, he offers a 15% discount to those who’ve already registered if they refer a fellow workshop participant. When is that discount applied? Up front or spread across the span of the workshop? What is the net effect on revenue recognition?

For any of the above scenarios, George Jetson might be able to eventually to sort through, make sense and properly record the corresponding revenue. Of course, he’ll likely have lost valuable work time trying to ensure that these revenue transactions are properly reported using a lot of Excel spreadsheets. And chances are that he’ll run into a few glitches here and there. This wouldn’t be such a big deal if we’re talking about one or a few customers over one or two workshops. But, as we all know, the DIY Sprocket segment is taking off, so we’re talking about several workshops with 50 customers enrolled in each one. At this point, George is going to run into more than just a few glitches here and there; and he’s going to lose more than just a few minutes of valued work time. This minor glitch will have quickly morphed into a hydra-like nightmare that even the most diligent controller would have trouble reconciling. Besides, who’s got the time to sort through all this? I know, I don’t, and neither does Mr. Jetson.

So why all the fuss, George? He’s doing this and subjecting himself to this reporting labyrinth, because he needs to be able to rely on precision-driven financial statements and reports. Precision-geared statements lead to reliable information, proactive analysis and ultimately, better business decisions.

Gravity’s magic button: Revenue Recognition module

So, where’s the mythical button? That all-in-one key that magically does all the dirty work for you? If only someone would come up with a working module that could sort through and streamline the revenue recognition process. How cool would that be?

Gravity Software® (Gravity) introduced its Revenue and Expense Recognition module that automates the whole process and makes revenue recognition (and all its requirements) as simple as drafting a purchase order. Gravity’s Revenue Recognition module can handle any new standard or requirement the FASB sends your way. Based on recognition templates, Gravity will create the deferral schedules automatically. All you have to do is post the monthly entries.

Gravity can help your business grow by unlocking information, eliminating reporting friction and driving efficiency across the board. If your current entry level accounting software is creating more friction than growth, consider a better, viable option in Gravity Software. Learn more and schedule your online demo today!

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