How a Billing System Can Help With ASC 606 Compliance

A billing system can play a crucial role in helping a business achieve compliance with the Accounting Standards Codification Topic 606 (ASC 606), which is an industry-neutral model issued by the Financial Accounting Standards Board (FASB) that outlines the principles for recognizing revenue from customer contracts. In order to comply with ASC 606, businesses need to ensure accurate revenue recognition and disclosure. In this blog, we will discuss how a billing system can assist in achieving compliance.

Revenue Recognition Automation: ASC 606 requires that revenue be recognized when goods or services are transferred to the customer, typically when reassigning control over the promised goods or services. A billing system can automate the recognition of revenue by tracking contract milestones, delivery dates, or customer acceptance criteria. This process ensures that revenue is recognized accurately and consistently, reducing the risk of errors associated with manual recognition.

Contract Management: ASC 606 emphasizes the importance of contract identification and management. Billing systems often include contract management features that allow businesses to store and track contract terms, pricing, performance obligations, and other critical information. This approach ensures that all relevant contract data are readily available for compliance purposes.

Price Allocation: Under ASC 606, businesses must allocate the transaction price to each distinct performance obligation in the contract. Billing systems can automate the allocation process by considering contract terms, pricing structures, and performance obligations, thus ensuring that the allocation of revenue is correct.

Variable Consideration Management: ASC 606 requires businesses to estimate and account for variable consideration, such as discounts, rebates, or incentives. Billing systems can help track and calculate variable consideration accurately, which safeguards that the recognition of revenue is in accordance with the standard's guidance.

Disclosure Reporting: ASC 606 also mandates comprehensive disclosures in financial statements regarding revenue recognition policies, performance obligations, contract balances, and significant judgments and estimates. Billing systems can generate reports that provide the necessary information for disclosure purposes, simplifying the reporting process and enhancing transparency.

Contract Modifications: When contract modifications occur, ASC 606 requires businesses to assess whether the modification results in a new contract or a change to the existing version. A billing system can track and document contract modifications, which helps businesses determine the appropriate accounting treatment.

Audit Trail: Maintaining a detailed audit trail is essential for ASC 606 compliance. Billing systems often offer robust audit trail capabilities, allowing businesses to trace revenue recognition decisions, contract changes, and other relevant activities, which can be crucial in case of audits or reviews.

In summary, a robust billing system can significantly facilitate ASC 606 compliance by automating revenue recognition processes, contract management, price allocation, variable consideration tracking, disclosure reporting, and more. This automation not only helps businesses adhere to the accounting standard's requirements but also enhances accuracy, transparency, and efficiency in revenue recognition and reporting processes. If you would like to speak with one of RESPEC’s billing experts to assist with your ASC 606 compliance, please reach out to RESPEC at

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