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Understand the difference between input and output method for revenue recognition, and learn how to choose the best fit for your business contracts.
How you recognize revenue tells a story about your company's performance. For contracts fulfilled over time, that story hinges on one choice: input vs. output method. The decision comes down to a simple question: what does your customer actually receive? Is it your continuous effort, or is it a distinct result? If it's the latter, the output method is your answer. The 'output based meaning' is all about tying revenue to measurable milestones. Getting your output method revenue recognition right isn't just for auditors; it's about telling an honest financial story. This article will help you confidently choose the right 'output based' approach.
When you fulfill a contract over time, you need a reliable way to measure your progress. This is essential for recognizing revenue accurately in each accounting period. The two primary approaches for this are the input method and the output method. Think of them as two different lenses to view how much of a job is complete. One looks at the effort you’ve put in, while the other looks at the results the customer has received. Choosing the right one depends entirely on which method best reflects the transfer of value to your customer.
The input method measures progress based on the efforts you've expended or the resources you've consumed to fulfill the contract. It’s all about what you’re putting in to the project. Common examples of inputs include labor hours worked, costs incurred, or the amount of materials used.
To use this method, you first estimate the total inputs required to complete the entire project. Then, you recognize revenue in proportion to the inputs you've used to date. For instance, if you’ve completed 400 of a project’s estimated 1,000 labor hours, you would recognize 40% of the total contract revenue. This approach is often used when there isn't a direct link between effort and tangible results, or when milestones are hard to define.
The output method, on the other hand, measures progress based on the value transferred to the customer. Instead of looking at your effort, it focuses on the tangible results or the goods and services the customer has already received. This is about what the customer is getting out of the deal.
Examples of outputs include units produced or delivered, milestones completed, or miles of road paved. To apply this method, you compare the results achieved to date with the total expected results of the contract. If a contract is for building five identical houses and you’ve completed two, you can recognize 40% of the revenue. This method is a great fit when performance obligations have clear, distinct, and measurable outcomes.
The concept of measuring progress by results isn't limited to individual business contracts. On a much larger scale, economists use a similar approach to gauge the health of an entire country's economy. This macroeconomic version is also called the output method, and it's one of the primary ways to calculate a nation's Gross Domestic Product (GDP). Just as the output method in accounting focuses on the value delivered to a customer, the economic output method focuses on the total value of goods and services produced across all sectors of the economy. It provides a snapshot of a country's productive capacity by adding up the market value of everything made, from cars to software to haircuts.
When calculating GDP, the output approach works by summing the "gross value added" from every industry. Gross value added is simply the value of all goods and services produced minus the cost of the inputs used to create them. This distinction is critical because it prevents double-counting. For example, if a lumber mill sells wood to a furniture maker, and the furniture maker sells a table to a customer, economists only count the final value of the table. The value of the wood is already baked into the table's price. By focusing on the final output, this method gives a clear picture of a country's economic production for a specific period.
Both ASC 606 and IFRS 15 allow for the use of input and output methods. The standards don't prescribe one over the other; instead, they require you to choose the one that most faithfully depicts the transfer of control of goods or services to the customer. The goal is to provide a true representation of your performance on the contract.
Your choice isn't about convenience—it's about accuracy. You need to analyze each performance obligation to determine whether effort (input) or results (output) is the better indicator of progress. This decision is critical for compliance and ensures your financial statements accurately reflect the value you've delivered in any given period.
At their core, both methods are designed to help you recognize revenue over time, but they look at progress from completely different angles. One focuses on the work you put in, while the other focuses on what the customer gets out. Understanding how each one measures progress is the first step in figuring out which is the right fit for your contracts and your business.
The input method recognizes revenue based on the efforts or resources you use to fulfill your side of the deal. Think of it as measuring the work going in. This approach ties revenue directly to the costs incurred, labor hours spent, or materials consumed. Essentially, you’re recognizing revenue in proportion to the work you’ve completed.
For example, if a consulting project is expected to take 100 hours, and you’ve already logged 25 hours, you would recognize 25% of the total contract revenue. This method is often used in long-term construction or professional services contracts where your efforts and materials are a direct and faithful indicator of the value being transferred to the customer over time.
The output method measures progress based on the value delivered to the customer. Instead of looking at your efforts, this method focuses on the results or tangible goods and services the customer has received. It answers the question, "What has the customer actually gotten from us so far?"
Common ways to measure progress with the output method include hitting specific project milestones, delivering a certain number of units, or completing distinct phases of a contract. For a software company, this might mean recognizing revenue as each new feature module is completed and delivered. This approach is often more straightforward because it’s based on observable outcomes, making it a clear indicator of the value transferred.
Your choice between these two methods isn't just a matter of preference; it can dramatically change when revenue appears on your financial statements. Imagine a project where you spend a lot on materials upfront (input), but the first deliverable (output) isn't for another few months. The input method would allow you to recognize revenue early on as you incur those costs. The output method, however, would show zero revenue until that first milestone is officially hit.
ASC 606 requires that the method you choose accurately depicts the transfer of goods or services. If you can't reasonably measure your progress toward satisfying a performance obligation, you may only be able to recognize revenue equal to the costs you've incurred until you can.
Choosing between the input and output methods isn't about picking the easier one; it's about selecting the one that most faithfully represents how you transfer value to your customer. The input method is the right choice when your progress is best measured by the effort you expend—like costs, labor hours, or machine time—rather than by distinct deliverables. This approach is particularly useful for long-term projects or services where the final output isn't easily divisible into milestones.
Think of it this way: if you're building a custom piece of software from scratch, it’s often more practical to recognize revenue based on the developer hours logged than to wait for specific features to be completed. The input method shines when the connection between your efforts and the satisfaction of your performance obligation is direct and clear. In the following sections, we’ll look at the specific contracts, industries, and practical considerations that make the input method the most logical and compliant choice for your business.
The input method is your best bet for contracts where the final deliverable is intangible or difficult to quantify. It’s often used when it's hard to see or measure the actual outputs, which is common in many service-based agreements. For example, consider long-term consulting engagements, complex research and development projects, or architectural design services. In these scenarios, the value is delivered continuously through expertise and labor, not in neat, measurable packages. The input method allows you to recognize revenue in a way that reflects the ongoing effort and resources you’re dedicating to fulfilling your contractual promise to the customer.
Certain industries naturally lean toward the input method because of the nature of their work. Professional services firms—like law, accounting, and management consulting—are prime examples. This method works best when the resources you use directly show how much work you've done, such as in a consulting job that charges by the hour. The same logic applies to many construction projects where revenue is recognized based on costs incurred to date. The critical factor is a direct correlation between the inputs (e.g., labor hours, materials consumed) and the progress made in transferring control of the asset or service to the customer.
Sometimes, the decision comes down to practicality. Input methods can be used if they are cheaper to apply and still give a good idea of progress. However, this convenience comes with a major caution: you must ensure your inputs accurately reflect progress. This method might not show the true picture if there are significant inefficiencies. For instance, wasted materials or labor hours spent on rework don't contribute to fulfilling the performance obligation. You must exclude any inputs that don't represent real progress in transferring value to the customer to maintain compliance and present an accurate financial picture.
While the input method focuses on the effort you put into a project, the output method shifts the focus to what your customer actually receives. Think of it as measuring results, not resources. This approach directly ties revenue recognition to the value you deliver, which can be a more intuitive and accurate reflection of your progress in fulfilling a contract. If your projects have distinct deliverables or clear completion points, the output method is often the most logical choice for staying compliant and presenting a clear financial picture.
The output method shines when a project is broken down into clear, observable milestones. If you can point to specific deliverables and say, "This part is complete," you have a strong case for using this approach. For example, a construction company completing the foundation of a building or a software firm delivering a specific functional module has achieved a tangible milestone. According to accounting guidance, output methods are often the best way to show how much value has been transferred to the customer. This method works because each completed milestone represents a distinct piece of value the customer now controls, making it a straightforward way to measure progress toward satisfying the full performance obligation.
At its core, the output method is all about the customer's perspective. It measures the results you’ve achieved or the value you’ve already provided, rather than the hours you’ve worked or the materials you’ve used. Imagine you’re building a custom piece of furniture. Your customer cares about the finished product, not how many hours you spent sanding it. The output method aligns your revenue recognition with this reality. By focusing on the value transferred—like units produced, chapters written, or features deployed—you create a direct link between your performance and the revenue you record. This makes your financial statements easier for stakeholders to understand because they reflect the actual progress of your deliverables.
Regulators tend to favor the output method because it directly answers the most important question in revenue recognition: What value has the customer actually received? The core principle of standards like ASC 606 is to ensure revenue recognition accurately reflects the transfer of goods or services. The output method aligns with this by focusing on tangible results—like completed milestones or delivered units—rather than internal efforts. The chosen method must faithfully depict how a company is fulfilling its promise. Because outputs are observable and tied to the customer's perspective, they provide a clearer, more objective picture of performance.
This preference also comes down to verifiability. It’s much easier for an auditor to confirm a project milestone has been met than to validate the efficiency of labor hours. The output method relies on observable outcomes, removing subjectivity from financial reporting. Inputs can mask inefficiencies—like wasted materials or rework—that don't contribute to customer value. By focusing on the finished product or service delivered, the output method provides a more transparent and defensible basis for revenue recognition, making the audit process smoother for everyone involved.
For the output method to work effectively, your performance obligations should have certain traits. This method is best suited for contracts where you can directly measure the value of the goods or services already given to the customer compared to what’s left to deliver. A classic example is a contract to deliver 1,000 units of a product over a year. After delivering 250 units, you can confidently recognize 25% of the revenue. This works because each unit has a standalone value. The key is that the output is easily quantifiable and represents a faithful depiction of progress. When performance obligations are distinct and uniform, the output method provides a clear and defensible way to handle ASC 606 compliance.
Choosing between the input and output methods isn't just an accounting detail—it's a strategic decision that shapes how your financial story is told. Each approach has its own set of strengths and weaknesses, and the right choice depends entirely on the nature of your contracts and performance obligations. Understanding these nuances is key to ensuring your financial statements accurately reflect the value you deliver to your customers over time. Let's break down the pros and cons so you can feel confident in your approach.
The biggest advantage of the input method is its practicality. It recognizes revenue based on the effort you put in, like labor hours or costs incurred. This can be much simpler to track, especially for long-term projects where defining distinct deliverables is tricky. If you can easily measure your team's time or the materials used, this method offers a straightforward way to show progress.
However, the main drawback is that effort doesn't always equal value delivered. You could spend a lot of time and resources inefficiently without creating much for the customer. The input method might not capture this, potentially overstating revenue in early stages. You have to be careful to exclude any costs that don't actually contribute to progress, which requires careful judgment and solid internal controls.
The output method is often considered the gold standard because it directly measures the value transferred to the customer. By recognizing revenue based on completed milestones, units delivered, or other tangible results, your financial reports provide a truer picture of your performance. This approach aligns perfectly with the core principle of revenue recognition: recognizing revenue when control of a good or service passes to the customer. It gives stakeholders a clear and intuitive understanding of your progress.
The challenge with the output method lies in measurement. For some projects, defining and valuing distinct outputs can be complex. If milestones are not clearly defined in the contract or if the value of each deliverable is subjective, applying this method consistently can be difficult. It requires clear performance obligations to work effectively.
The output method is often considered the gold standard because it directly measures the value transferred to the customer. By recognizing revenue based on completed milestones, units delivered, or other tangible results, your financial reports provide a truer picture of your performance. Unlike the input method, which can sometimes reward inefficiency by recognizing revenue for wasted time or materials, the output method ties your earnings directly to what you’ve accomplished. This creates a more honest and reliable reflection of your company's health, ensuring your financial statements are based on actual, delivered value rather than just effort expended.
By focusing on the value transferred—like units produced, chapters written, or features deployed—you create a direct link between your performance and the revenue you record. This makes your financial statements easier for stakeholders to understand because they reflect the actual progress of your deliverables. Investors, board members, and lenders can clearly see what has been accomplished, which builds trust and confidence in your reporting. It removes the ambiguity that can come from input-based metrics like "hours worked," providing a clear, defensible narrative of how your company is performing against its contractual promises. This clarity is invaluable for making strategic decisions and maintaining strong stakeholder relationships.
ASC 606 requires that the method you choose accurately depicts the transfer of goods or services. When your deliverables are distinct and measurable, the output method is often the most straightforward way to meet this requirement. It creates a clear audit trail that directly links recognized revenue to completed work, making it easier to defend your accounting choices. Automating this process with the right system integrations can further solidify your compliance by ensuring milestones are tracked consistently and accurately across all contracts. If you can't reasonably measure your progress toward satisfying a performance obligation, you may only be able to recognize revenue equal to the costs you've incurred until you can.
The method you choose directly affects the timing of your revenue recognition, which can significantly alter your financial statements from one period to the next. An input method might show smoother, more consistent revenue over a project's life, while an output method could result in lumpier revenue tied to specific milestones. This choice influences key metrics like profitability and growth, impacting everything from investor perceptions to loan covenants.
Ultimately, ASC 606 requires you to select the method that most faithfully depicts the transfer of goods or services. If you can't reasonably measure your progress using either method, you may only be able to recognize revenue up to the costs you've incurred until a clearer picture emerges. This makes choosing and consistently applying the right method critical for accurate and compliant financial reporting.
This decision extends beyond your income statement, directly impacting your balance sheet through contract assets and liabilities. Using the input method, you might recognize revenue as you incur costs, even before you can send an invoice. This creates a contract asset—your right to future payment for work already performed. The output method can work the other way. If a customer pays you before a milestone is complete, that cash becomes a contract liability (or deferred revenue) until you’ve earned it. These timing differences can alter important financial metrics like your working capital and current ratio, highlighting why a clear, automated system for revenue recognition is essential for an accurate financial picture.
Beyond just choosing a method, you have to apply it correctly and consistently. Accounting standards like ASC 606 include specific rules to handle the messy realities of long-term contracts—things like changing estimates, large upfront costs, and situations where progress is just plain hard to measure. These rules aren't meant to trip you up; they're designed to ensure your financial reporting remains a faithful representation of your performance. Getting these details right is crucial for compliance, passing audits, and making sound business decisions based on data you can trust. Let's walk through some of the key considerations you'll need to keep in mind.
Sometimes, the simplest answer is the right one. The "invoice practical expedient" is a rule that allows you to simplify revenue recognition in certain situations. If the amount you have the right to invoice a customer directly matches the value of the work you've completed so far, you can recognize revenue based on that invoiced amount. Think of a consulting contract where you bill a fixed rate for each hour of service. In this case, your invoice is a perfect proxy for the value transferred. This shortcut saves you from complex progress calculations, but it only works when your billing is a direct reflection of the value delivered to the customer, as outlined in the accounting guidance.
When using the input method, what happens if you incur a huge cost on day one? For example, maybe you purchase all the raw materials for a six-month manufacturing project upfront. Recognizing revenue based on that initial spike in costs would distort your financial picture, making it seem like you completed a massive portion of the project before any real work began. To avoid this, you must ensure that the inputs you measure truly represent the transfer of value to the customer. Significant upfront costs that don't correspond to progress should be capitalized as an asset and then recognized as an expense over the life of the project, aligning your revenue recognition with your actual performance.
Projects rarely go exactly as planned. Budgets shift, timelines change, and the total estimated effort can increase or decrease. When your estimates change, accounting rules require you to update your revenue recognition calculations prospectively. This means the change affects the current and future accounting periods, but you don't go back and restate past financial reports. For example, if you realize a project will require 20% more labor hours than originally planned, you'll adjust your revenue calculations from that point forward. Manually tracking these changes can be a nightmare, which is why an automated system is so valuable for ensuring your calculations always use the most current information.
What do you do in the early stages of a complex project when you can't reasonably measure your progress? In these situations, you can't just guess. Instead, accounting standards provide a conservative approach: you can recognize revenue only up to the amount of the costs you've incurred, as long as you expect to recover those costs. This is essentially a zero-profit approach. You’re not showing any profit on the project yet, but you are matching revenue with your expenses. Once you reach a point where you can reliably measure your progress, you can switch to your chosen input or output method for the remainder of the contract.
Consistency is king in accounting. Once you determine whether the input or output method is the most faithful way to measure progress for a specific performance obligation, you must stick with it. You can't switch back and forth between methods on the same obligation just because one might look better in a certain quarter. This consistency ensures that your financial statements are comparable over time and provides a clear, defensible logic during an audit. Applying one method consistently across similar contracts is a cornerstone of reliable financial reporting and is much easier to enforce with a centralized, automated revenue management process.
Choosing between the input and output methods is a critical first step, but the real work begins during implementation. Even with a clear understanding of ASC 606, companies often run into a few common roadblocks that can complicate their revenue recognition process. Getting ahead of these challenges is key to maintaining accurate financials and staying compliant. Let's walk through the three biggest hurdles you're likely to face and how to prepare for them.
The method you choose directly impacts when you recognize revenue, which can create significant discrepancies in financial reporting if not managed carefully. For instance, if you use the input method based on hours worked, you need a foolproof system for tracking every minute. If you use the output method based on milestones, you need objective, verifiable proof that each milestone was met. Without precise tracking, your revenue figures can become unreliable, making it difficult to get a clear picture of your company’s performance. This isn't just an internal issue; it can affect everything from investor confidence to loan applications.
When it’s time for an audit, your documentation is your first line of defense. Auditors will want to see not only what method you chose but why you chose it and how you apply it consistently. Your disclosure statements need to clearly communicate your approach to provide a full picture of your financial health. Inconsistent or incomplete records can raise red flags and lead to serious compliance problems. Think of your documentation as the story of your revenue. It needs to be clear, logical, and backed by evidence to satisfy auditors and give stakeholders confidence in your numbers. You can find more insights on financial operations on our blog.
Consistency is non-negotiable in revenue recognition. Once you decide on a method for a specific type of performance obligation, you must apply it to all similar contracts. Switching between methods for comparable agreements can make your financial statements confusing and difficult to compare over time. More importantly, it can look like an attempt to manipulate earnings. This is especially challenging for businesses with a high volume of varied contracts. Establishing a clear, documented policy is essential, but enforcing it requires robust systems. Having a centralized platform that integrates with your CRM and ERP helps ensure everyone follows the same rules, every time.
Choosing between the input and output method is a significant accounting decision, but your work doesn’t stop there. The next step is to clearly communicate your choice—and its implications—to your stakeholders. Investors, lenders, and board members need to understand how you recognize revenue to accurately gauge your company’s financial health. Being proactive and transparent about your methodology builds trust and shows that you have a firm handle on your financial reporting. It’s about telling the story behind the numbers in a way that is clear, consistent, and compliant.
Your financial disclosure statements are the official record of your accounting practices. When it comes to revenue recognition, they need to be crystal clear. Start by explicitly stating which method—input or output—you use for different types of contracts or performance obligations. Explain the significant judgments you made in applying the method, such as how you measure progress or determine the value delivered. Providing this context helps stakeholders gain a complete understanding of your financial performance. The goal is to leave no room for ambiguity, ensuring anyone reading your financials can follow your logic and feel confident in your numbers.
Beyond formal disclosures, it’s smart to educate your stakeholders directly. Not everyone is an accountant, so avoid getting lost in technical jargon. Instead, focus on the "why." Explain why you chose a particular method for a specific contract and how it accurately reflects the way your business delivers value. It’s helpful to anticipate stakeholder expectations and prepare simple, direct answers to their likely questions. Using visuals or real-world examples can make the concepts much easier to grasp. When you make the information accessible, you empower your stakeholders to make better-informed decisions.
Financial transparency is all about building confidence. Consistent application of your chosen revenue recognition method is fundamental to this. When stakeholders see that you follow clear revenue recognition rules, they can more easily compare your performance to previous periods and to other companies in your industry. This consistency provides a stable foundation for financial analysis and forecasting. Proper revenue recognition isn’t just a compliance task; it’s a key part of how you communicate with investors, lenders, and shareholders. It gives them a clear and accurate picture of your operations, which is the cornerstone of a healthy business relationship.
Choosing between the input and output method is a major step, but the real work begins with implementation. A successful rollout isn't just about picking a method; it's about embedding it into your operations so it’s accurate, consistent, and audit-proof. Getting this right from the start saves you from future headaches, like restating financials or failing an audit. By focusing on clear criteria, a well-prepared team, and regular check-ins, you can build a reliable revenue recognition process that supports your business as it grows.
Before you can recognize a single dollar, you need to define exactly what you’re measuring. Your criteria must directly reflect the transfer of value to your customer. Whether you choose the input or output method, the key is to select a measure that faithfully represents your progress toward completing the performance obligation. For an input method, this could be costs incurred or labor hours. For an output method, it might be units delivered or milestones achieved. Document these criteria clearly and apply them consistently to similar contracts to ensure your revenue recognition over time is both logical and defensible.
Your team is your first line of defense for accurate financial reporting. Make sure your accounting and finance staff understand ASC 606 and how to apply your chosen measurement method consistently. But training alone isn't enough if they’re wrestling with clunky, disconnected systems. Manual data entry and spreadsheet management are recipes for error. This is where technology becomes a critical partner. By implementing seamless integrations between your CRM, ERP, and accounting software, you create a single source of truth. This automates data flow, reduces manual work, and gives your team the reliable information they need to do their jobs effectively.
Revenue recognition is not a "set it and forget it" process. Your contracts and projects are dynamic, and your measurement of progress must be, too. As Deloitte notes, companies need to re-evaluate their progress at the end of each reporting period. Set up a regular cadence—whether monthly or quarterly—to review your progress measures. This allows you to make adjustments for contract modifications, changes in project scope, or unforeseen delays. Consistent monitoring ensures your financial statements remain accurate and compliant with accounting standards. It also helps you identify and address potential issues before they become significant problems during an audit.
Choosing between the input and output methods isn't just about picking the easier option. It’s a strategic decision that needs to align with how your business delivers value. The right choice ensures your financial statements are accurate, compliant, and truly reflect your performance. To make a confident decision, you need a clear process that considers your contracts, your customers, and your long-term financial health. Let's walk through how to build that process.
Start by building a simple framework to guide your choice. The core principle is that the method you pick must accurately show how much work you've done and how much value you've given to the customer. Your framework should be a set of questions you ask for every type of contract. For example: Can we reliably measure the effort we put in (inputs)? Or is it easier to measure the tangible results the customer receives (outputs)? Does one method better represent the transfer of control? Documenting these questions and your answers will create a consistent approach and give you a solid rationale for your decision, which is exactly what auditors want to see. For more on building strong financial processes, check out our insights.
Your customer contracts are your primary source of truth. Before you decide on a method, you need to understand the specifics of your performance obligations. Are you delivering a single service over time or multiple distinct goods? Are there clear milestones or deliverables outlined in the agreement? According to accounting standards, for each job done over time, a company must use one method to measure progress and apply it consistently for similar jobs. Scrutinizing your contracts will reveal the nature of your promises to customers, which in turn points toward the most appropriate measurement method for ASC 606 & 944 compliance.
Your choice of revenue recognition method isn't just an accounting detail—it has real financial consequences. The choice between input and output methods can significantly change when a company records its revenue, affecting everything from cash flow projections to investor communications. You must use good judgment to pick the method that best shows how you transfer control of goods or services to the customer. It’s a good idea to model how each method would impact your revenue streams over a few reporting periods. This foresight helps you understand the story your financials will tell and prepares you for conversations with stakeholders. Seeing these scenarios play out can make your decision much clearer. If you want to see how automation can help with this kind of modeling, you can schedule a demo with our team.
Manually tracking revenue recognition, especially for high-volume businesses, can feel like a constant uphill battle. You’re juggling spreadsheets, cross-referencing contracts, and spending hours on calculations that are prone to human error. This is where automation changes the game. Using software to automate revenue recognition helps apply your rules consistently across every single transaction. It saves an incredible amount of time, reduces costly mistakes, and ensures your business stays aligned with complex accounting standards like ASC 606.
Instead of getting bogged down in the details, your finance team can focus on what really matters: strategic analysis and growth. Automation provides a clear, real-time view of your financial health, turning messy data into actionable insights. It establishes a single source of truth for your revenue, which means you can close your books faster and with more confidence. Think of it as giving your team a powerful tool to handle the repetitive work, so they can apply their expertise to bigger-picture financial strategy. This shift from manual data entry to strategic oversight is fundamental for scaling your business profitably and sustainably.
Choosing between the input and output method requires careful consideration, and your system needs to be flexible enough to handle whichever you select. HubiFi is designed to manage the complexities of both. Our platform automates the complex calculations based on the rules you define, whether you're measuring progress by costs incurred or milestones achieved. While our system does the heavy lifting, we understand the importance of management judgment. Business leaders still need to apply their expertise to contract details, and our platform provides the clear data visibility required to make those informed decisions with confidence. You can find more insights on our approach to these methods on our blog.
Adopting a new tool shouldn't mean disrupting your entire workflow. A major benefit of automation is its ability to connect the dots between your existing platforms. HubiFi offers seamless integrations with the accounting software, ERPs, and CRMs you already rely on, from QuickBooks and NetSuite to Salesforce. This creates a unified data environment where information flows automatically, eliminating manual data transfers and reconciliation headaches. It also makes it easier to update your revenue recognition policies as accounting standards and your business evolve, ensuring your entire tech stack is always on the same page.
Facing an audit can be stressful, but it doesn’t have to be. Automation helps you stay prepared by default. By setting up clear rules and reviews within the system, you ensure that revenue is always recognized correctly and consistently. HubiFi creates a detailed, transparent audit trail for every transaction, showing exactly how and when revenue was recognized. This means when auditors come knocking, you can provide them with clear, accurate, and easily accessible documentation. This level of preparedness not only makes audits smoother but also gives you peace of mind knowing your financials are always compliant. If you want to see how this works, you can schedule a demo with our team.
Is the output method always better since it focuses on customer value? Not necessarily. While the output method is often preferred because it directly measures the value delivered to the customer, it's not always practical. For complex, long-term projects without clear milestones, like research and development, the input method is a more faithful way to show progress. The "better" method is whichever one most accurately reflects how you transfer control of goods or services to your customer for that specific contract.
What happens if I choose the input method and my costs are higher than expected due to mistakes? This is a critical point to manage. Under ASC 606, revenue should only be recognized in proportion to the progress made in satisfying the performance obligation. Costs that result from significant waste or inefficiency, like having to redo work, don't represent progress. You must exclude those specific costs from your calculation to avoid overstating your revenue and ensure your financial reporting is accurate.
Can I use different methods for different parts of the same contract? Yes, you can. If a single contract contains multiple, distinct performance obligations, you should assess each one individually to determine the best method. For example, you might use the output method for delivering a piece of equipment (a clear deliverable) and the input method for the ongoing maintenance services (an effort-based task) included in the same agreement.
How do I choose a method if both seem like they could work? When you're at a crossroads, go back to the core principle: which method provides the most faithful depiction of your performance? Consider which one is more verifiable and less subject to manipulation. If you have clear, observable milestones, the output method is often more defensible. If progress is truly tied to continuous effort, the input method is the logical choice. Documenting your reasoning is key for audit purposes.
Does automating revenue recognition mean I don't have to worry about which method to choose? Automation is a powerful tool, but it doesn't replace your professional judgment. You still need to analyze your contracts and select the appropriate method. Where automation shines is in the implementation. Once you've made your choice, a system like HubiFi can consistently apply the rules, perform the calculations, and maintain a clear audit trail, which saves time and prevents costly human errors.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
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