How to recognize revenue from services and subscriptions

Graziano Stefanelli
Sep 18
3 min read

Service-based and subscription-based revenue models have become central to many industries, from consulting and telecommunications to software and digital content. Under IFRS 15 and ASC 606, entities must determine whether services are transferred to the customer over time or at a point in time, and apply a recognition pattern that reflects the actual transfer of control. Subscription arrangements—typically time-based—are generally recognized over the period of service, while one-time or milestone-based services may follow different recognition rules.

Most services are recognized over time using a straight-line or input-based method.

For most service arrangements, the customer receives and consumes the benefit of the service as it is performed. This meets the first of the three over-time criteria under the revenue standards and requires the entity to recognize revenue progressively.

Examples of services recognized over time:

Consulting
Legal and audit services
Support and maintenance agreements
Marketing or advertising services
Hosting and IT support

If the pattern of performance is evenly distributed, a straight-line method may be used. If not, companies must use an input or output method that better reflects performance.

Example — Monthly consulting engagement ($20,000 over 4 months):

Dr. Contract asset (or A/R)       5,000  
    Cr. Revenue                                5,000

Repeat monthly for the service duration.

Subscriptions are time-based and recognized evenly across the contract period.

Subscriptions provide customers with continuous access to a service or content for a defined period. The performance obligation is fulfilled evenly over time, and the most appropriate revenue recognition method is usually straight-line.

Common subscription examples:

SaaS platforms
Streaming services
Print or digital publications
Cloud storage
Gym memberships

Revenue is deferred at contract inception and recognized monthly over the subscription term.

Example — Annual SaaS subscription billed upfront for $1,200:

Monthly revenue = $1,200 / 12 = $100

At contract inception:
Dr. Cash                          1,200  
    Cr. Deferred revenue                    1,200

Each month:
Dr. Deferred revenue              100  
    Cr. Revenue                              100

One-time or milestone-based services may follow point-in-time recognition.

If the service does not provide benefits continuously, or if control transfers only at completion, revenue should be recognized at a point in time. This often applies to:

One-time training sessions
Legal opinions or audit certifications delivered once
Milestone billing for projects with defined deliverables

To apply point-in-time recognition, the company must assess when the customer obtains control of the promised outcome (e.g., deliverable completed, report transferred).

Multi-element service contracts require identification and separation of obligations.

Some service contracts include multiple deliverables, such as:

Onboarding followed by support
Installation followed by monitoring
Set-up services and subscription access

Under both IFRS 15 and ASC 606:

Each distinct component must be accounted for separately
Revenue is allocated using standalone selling prices
Recognition is based on each obligation’s pattern

Example — Software company provides:

Setup service: $500 (point in time)
1-year support: $1,500 (over time)

Dr. Cash                           2,000  
    Cr. Revenue (setup)                        500  
    Cr. Deferred revenue (support)           1,500

Support revenue is recognized over 12 months.

Discounts and variable pricing in subscriptions must be evaluated carefully.

When a contract includes:

Introductory discounts
Tiered pricing
Promotional bundles

…revenue must be allocated proportionally based on standalone prices. Any variable consideration (e.g., usage-based fees) must be estimated and constrained until it is highly probable that it won’t result in a revenue reversal.

IFRS 15/ASC 606 guidance includes:

Estimating the transaction price at inception
Allocating that price to each performance obligation
Recognizing revenue as each is satisfied

Disclosures for services and subscriptions focus on timing and judgment.

Companies are required to disclose:

The nature of their service-based revenue
Whether revenue is recognized over time or at a point in time
The methods used to measure progress
Contract balances (deferred revenue, contract assets)

This information typically appears in the revenue or segment notes and helps investors assess recurring revenue streams and customer contract structures.

Revenue from services and subscriptions must reflect the actual delivery of value to the customer. Whether through consistent service over time or specific deliverables at distinct points, IFRS 15 and ASC 606 require a disciplined, contract-specific approach that ensures both comparability and faithful representation of income earned in service-driven business models.

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