Topic: General Posts
Subject: My Client has two related ASC 606 Questions
My client (a SAAS start-up company) has posed the following questions and I would appreciate any feedback from the membership on these issues:
a) What expense line items are (should be) included in your cost of revenue grouping on the income statement? Any detail you can provide would be very helpful
b) What costs do your clients typically defer or capitalize as part of their ASC 606 revenue policy?
I would be most appreciative of any and all responses.
Jeffrey Dachman, CPA
a) Cost of revenue rules don't change under ASC 606
b) ASC 606 reinforces the existing rules under ASC 340 - costs that relate to a specific revenue contract with a customer are capitalized - most commonly commissions, but could be other things such as legal fees that are only paid if a contract with a customer is signed. Also costs to fulfill a specific contract, such as set up costs with a new customer. There is a practical expedient to not capitalize any costs if the amortization period would be one year or less.
The most common expense that people defer with revenue is commmission. It can be a bit complex if you open to anything further than that.