In a subscription model, when should revenue be recognized?

In a subscription model, when should revenue be recognized?

• A. Over time as the service is delivered.
• B. When the service is billed.
• C. At cash receipt.
• D. At the end of term.

Answer: (A)

Revenue in a subscription model is recognized over the period the service is provided because the customer receives benefits continuously and the seller satisfies its performance obligation over time. Revenue is recognized as the service is delivered, not when cash is received or when billing occurs. If payment is received upfront, it creates a deferred revenue liability, and revenue is recognized gradually each period as the service is delivered. Recognizing all revenue at the end of the term would distort the timing of earnings and violate the accrual basis, since portions of the service were delivered earlier. In many cases, revenue is recognized on a straight-line basis across the term unless usage or other factors indicate a different pattern.

Revenue in a subscription model is recognized over the period the service is provided because the customer receives benefits continuously and the seller satisfies its performance obligation over time. Revenue is recognized as the service is delivered, not when cash is received or when billing occurs. If payment is received upfront, it creates a deferred revenue liability, and revenue is recognized gradually each period as the service is delivered. Recognizing all revenue at the end of the term would distort the timing of earnings and violate the accrual basis, since portions of the service were delivered earlier. In many cases, revenue is recognized on a straight-line basis across the term unless usage or other factors indicate a different pattern.