We recently signed a software license agreement which is subject to contract
Revenue Recognition: Pre-Sale Hours
Answers
I believe that there are several questions to ask first; when you say "good faith" hours, what did you accomplish? If in fact these hours where to produce the true end product, there is some support for Revenue (I emphasis some). However, if these hours are to produce a "proof of concept" or just a demo, then it is more supportive of R&D. So, I would ask for more details.
J.D. Floyd
Thank you for your advice. Those "good faith" hours were worked by our engineering and services team, aiming to deliver the deliverables set forth in the too-be-signed contract. They were not for the purpose of producing a "proof of concept" or performing a demo for our customer in this case.
In my current company, part of which develops websites for clients, I changed the revenue recognition policy to recognize 20% of revenue upon signing of Contract. I justified this to the auditors by laying out the upfront design work done in anticipation of the completed contract. Approximately 20% of the total design and coding work is done before the contract is signed. The auditors signed off on this policy.
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That is good news. Thanks so much.
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Accounting