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ASC 606 for hybrid contracts, in plain words

Performance obligations, SSP allocation and deferred revenue, without the audit-speak.

Anubhav DubeyFounder, Verlix · 12 min read

ASC 606 is 5 steps, and 4 of them are easy. The hard one is allocation, and it gets harder the moment a contract contains more than one kind of thing.

The 5 steps, briefly

  • Identify the contract
  • Identify the performance obligations in it
  • Determine the transaction price
  • Allocate that price to the obligations
  • Recognise revenue as each obligation is satisfied

Where hybrid contracts bite

A contract with a platform fee, metered usage, a block of prepaid credits and an onboarding engagement contains at least 4 obligations that are satisfied on 4 different schedules. The platform fee is rateable. Usage is recognised as consumed. Credits are recognised on drawdown, with breakage estimated. Onboarding is recognised on delivery.

One contract, 4 clocks. The allocation is what keeps them honest.

See it in the product: Revenue recognitionASC 606 schedules and journal entries built from the contract, without the spreadsheet.

Standalone selling price without the guesswork

SSP is where most teams improvise. If you sell the component separately, you have observable evidence and should use it. If you do not, you need a defensible estimate, usually an adjusted market assessment or expected cost plus margin, and, critically, the same method applied consistently across similar contracts.

Whatever method you pick, write down why. The judgement is acceptable; the absence of a stated basis is what your auditor will push on.

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