Accounting Best Practices, Fifth Edition

7–2. Educate the Sales Staff About Revenue Recognition

The sales staff is the primary engine of corporate profitability, and so is inclined to offer a broad array of deal sweeteners or custom terms to customers in order to ensure that a sale is finalized. Examples of special deals include free training, free maintenance, reduced pricing on the next product upgrade, and delayed payments. These alterations can present a major problem for the accounting department, since special deals can result in multielement sales transactions that trigger complex revenue recognition rules. While it is common to have the accounting department review the terms of proposed sale agreements prior to their approval, those deals have likely already been discussed with customers, and so are difficult to change. Also, having the accounting staff constantly alter deal terms introduces delay into the closing process.

A better approach is to conduct ongoing training sessions for the sales staff about revenue recognition rules. Training should be offered frequently, since turnover in the sales department can be high. Also, it is useful to construct training sessions using examples of both good and bad contracts, so that the sales staff can easily see which contract terms are most likely to cause problems. Such training should be accompanied by a rules guidebook that includes examples of acceptable deal structures, or by posting the same information on a company Web site. Training and supporting materials should ...