Accountant for Kitchener Waterloo businesses

Software revenue and a contractor heavy payroll

The Kitchener Waterloo corridor runs on technology and the professional services around it. Two accounting questions come up often here. The first is when subscription revenue should be recognised, because billing a year up front does not mean earning it up front. The second is whether the people doing the work are contractors or employees.

Both are judgement calls with real consequences, and both are decided on facts rather than on what a contract says. HBT works through them using the company's own arrangements and documents the position taken.

What a Kitchener Waterloo engagement covers

How the work begins

1. 1

   Step 1: Look at the contracts

   Billing terms, subscription periods and how the team is engaged.

2. 2

   Step 2: Set the treatment

   Revenue recognition and classification agreed and documented.

3. 3

   Step 3: Monthly close

   Deferred revenue maintained rather than corrected at year end.

When should a software company recognise subscription revenue?

Generally as the service is delivered rather than when it is billed. An annual subscription invoiced in January is usually earned across the twelve months that follow, with the unearned portion carried as a liability. Getting this wrong overstates early revenue and distorts both the financial statements and the tax position. The right treatment depends on the contract terms, which is why it is worth setting up properly at the start.