Revenue Recognition for Software Products with Multiple Deliverables

Selling several products and services for a single price is common practice in many industries. Many products included in such arrangements are not delivered at the time of sale. The character of the products and the nature of the earnings process affects the timing of the recognition of revenue. Depending on the accounting standard that applies to the transaction, a portion of the total price charged at the time of sale will be deferred until the products or services are delivered. Some transactions may require deferment of all of the revenue until delivery of the last portion of the package. Companies that sell software products and services that are not incidental to the products or services as a whole will generally need to follow the procedures under AICPA Statement of Position (SOP) 97-2, Software Revenue Recognition. As a result, software products that are essential to the function of any nonsoftware products will also be included under the scope of SOP 97-2. Multiple deliverable products that include software incidental to the products or services as a whole will be guided by Emerging Issues Task Force (EITF) Issue 00-21.