Deferred Commissions Under ASC 340-40: Capitalizing and Amortizing Costs to Obtain a Contract
Written by Harry Prabandham
Curated by Rubric Financial
Last updated
1 / 5
What ASC 340-40 Requires
- ASC 340-40 governs the incremental costs of obtaining a customer contract, and it is the companion guidance to the ASC 606 revenue standard.
- An incremental cost is one you would not have incurred if the contract had not been signed, and a sales commission is the classic example.
- If the cost is incremental and you expect to recover it, you must capitalize it as an asset rather than expense it immediately.
- This treatment is not optional under GAAP, so accrual-basis SaaS companies cannot simply run commissions through the income statement as they are paid.
Go deeper on this topic: SaaS Revenue Recognition Under ASC 606: A Founder's Guide to Getting It Right→
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About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
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