Applying Topic 606 in your college or university’s contracts is complex. These examples can help you implement the new five-step revenue recognition process.
The new accounting standards for revenue recognition (Topic 606) are onerous. Higher education institutions will have to closely analyze their customer contracts to accurately and effectively apply the five-step process necessary to complying with the principle-based rule.
For most colleges and universities, tuition and housing make up the lion’s share of your customer contracts. But plenty of other revenue-recognizing activities come into the mix, like food service and research grants. When you consider the myriad ways in which these contracts are structured, you see how things can get pretty complicated.
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Practical applications: learning by example
My guide Applying Topic 606 Using Various Contract Examples aims to help you understand the ways that the new rule can be applied in common contracts at colleges and universities. I’ve analyzed several hypothetical scenarios using the five-step process to arrive at compliant revenue recognition. These scenarios include:
- Tuition and housing
- Naming rights
- License and royalty
- Intellectual property
- Exclusive food service
- Research grant
- Sponsorship
- Membership revenue
A look at these examples can help get you started in evaluating and analyzing your school’s similar contracts.
I’ve also outlined some specific things you can do at your institution to get your team involved in integrating the new standard into accounting processes and procedures (while lessening disruption to your current practices where possible).
Topic 606 implementation due dates
For those higher education institutions with conduit debt, the new standards are effective for fiscal years beginning after December 15, 2017; all other institutions are required to implement the new standards for fiscal years beginning after December 15, 2018.
The new standard is complex. Start preparations now so you can implement the updated procedures as smoothly as possible.
View our other resources about revenue recognition for higher education institutions.