Multi-Year SaaS Contract Recognition 2025: ...

Multi-year contracts require spreading revenue over the contract term. Learn proper recognition methods.

Multi-Year Contract Basics

Revenue is recognized as performance obligations are satisfied, typically ratably over the service period for SaaS.

Contract term includes renewal periods if renewal is reasonably certain. Consider termination provisions and historical patterns.

Prepaid contracts create deferred revenue. Recognize ratably over service period. Cash timing differs from revenue recognition.

Modifications may require prospective or cumulative adjustment depending on whether they create new performance obligations.

Recognize 1/36th of total value each month over the 3-year term. The prepayment sits as deferred revenue until recognized.

Recognize any remaining deferred revenue immediately if no refund is due. If refundable, only recognize the non-refundable portion.

Multi-year contract recognition requires discipline in spreading revenue appropriately. Get it right from the start to avoid restatements.