Software Revenue Recognition

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The CPA Journal


The American Institute of Certified Public Accountants has issued SOP 91-1, a standard which delineates acceptable practice in the recognition of revenue obtained from computer software. SOP 91-1 states that revenue can be recognized only after the delivery of the software to a customer. Moreover, it holds that recognition can begin only if two basic criteria are met. The first is that the customer must have accepted the software product after its delivery. The second is that the collectibility of the amount due to the software developer is taken into account when revenue is recognized. As such, SOP 91-1 is consistent with the general rules covering the accounting of product sales. Under SOP 91-1, customer acceptance can be determined in several ways. This could be after testing of the software or after any modifications are cleared. SOP 91-1 also clarifies other revenue recognition rules in relation to contractual differences in various software agreements.