Revenue Recognition (Topic 606) At Salesforce.Com, Inc Case Solution & Answer

Revenue Recognition (Topic 606) At Salesforce.Com, Inc Case Study Solution

Primary Business Activities and Revenue Lines

The primary business activities of includes four parts/regions, which are:

  1. Sales of cloud.
  2. Service of clouds.
  3. Marketing and commerce cloud.
  4. And, sales force platform and other.

The sales cloud activity empowers the company’s sales team to provide goods in a much faster and smarter way to its ultimate customers, according to their needs and wants. While the service cloud activity empowers the sales team of the company to provide goods in a faster and smarter way to its ultimate customers and helps to personalize the customer service and support. The service cloud activity connects the service agents with the ultimate customers at anytime and anywhere. The marketing and commerce cloud activity empowers the companies to establish the personalized one to one marketing journeys with customers. And, the sales force platform activity includes: lightening platform, integration and collaboration, so that the customers and the companies can interact with each other.

The generates its revenues from two sources:

  1. Subscription Revenues.
  2. Revenues from Professional Services.

Approximately 93 percent of company’s revenues come from the subscription and support, which are driven by the multiplication of the number of paying subscribers according to their service types, with the price of the service type and their renewal charges. The normal subscription of a software is 12 to 36 months longer, while the terms might range to 60 months. The professional services include the sums of consulting fees, implementation fees and training fees, and the charges are associated with the clients related to the usage of equipment during the consulting, implementing and training.

The Five Revenue Recognition Steps

The five revenue recognition steps that are used to recognize the revenues, are:

  1. Identification of the contracts with the customers who meet the contractual criteria, such as: the commitment to perform the obligation, rights upon the goods and services that are transferring, payment terms, commercial substance and the exchange of goods and services.
  2. Identification of the obligations associated with performance in the contract.
  3. Determination of the transaction price that includes the listing of all the revenue streams, such as: franchises, franchise fees, royalties and renewal fees etc.
  4. Allocation of the transaction price that belongs to the contract related to the performance obligation.

And, the last is the revenue recognition when the entity gets satisfied regarding to the performance obligation, which are fully met according to the criteria

Consideration the Company Expects to Receive

In the revenue recognition steps; the meaning of the notion “consideration the company expects to receive” is related with the revenues, which the company hasn’t received yet, but the services or products have been delivered. It means that the has delivered the software or has provided training to the staff, but it is yet to collect the fees/charges from them. There are two possible methods to address this situation and get its payment as soon as possible, which are:

  1. Discounts on early payment or immediate payment.
  2. And, contingent payments or advanced payments.

These two techniques represent the methods of collecting the fees pertaining to revenues before the fiscal year ending, so the company would have less possibility of loss incurrence in future…………………………………


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