Revenue recognition clause: Copy, customize, and use instantly
Introduction
A revenue recognition clause defines how and when revenue from sales or services will be recognized in financial statements. It ensures that the contract complies with accounting standards, providing clarity on how revenue will be reported. This clause is critical in contracts involving long-term projects, software subscriptions, or any arrangement where payment terms are complex.
Below are templates for revenue recognition clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Revenue recognition clause (general)
This variation applies to standard contracts where revenue is recognized over time or at the point of delivery. It is suitable for most businesses with straightforward sales transactions.
"The revenue from the sale of products and services will be recognized when the products are delivered to the customer or services are fully rendered, whichever occurs first."
Revenue recognition clause (subscription-based)
This variation is applicable to subscription-based models where revenue is recognized over the duration of the contract.
"Revenue from subscription fees will be recognized on a monthly basis, beginning on the first day of the subscription period and continuing throughout the duration of the agreement."
Revenue recognition clause (milestone-based)
For contracts involving multiple milestones or stages, this variation recognizes revenue as milestones are completed.
"Revenue will be recognized upon the achievement of each milestone, with payments due according to the completion of each agreed-upon phase as detailed in Schedule A."
Revenue recognition clause (deferred)
In cases where payment is made upfront but revenue is recognized over time, this clause provides for the deferral of revenue recognition.
"Payments received in advance will be recognized as revenue on a pro-rata basis over the term of the agreement, starting from the delivery date or the commencement of services."
Revenue recognition clause (general)
This variation applies to contracts where revenue is recognized upon delivery or completion of services.
"Revenue will be recognized at the time of delivery of goods or completion of services as outlined in the agreement."
Revenue recognition clause (subscription-based)
For subscription models where revenue is recognized periodically over the term of the agreement.
"Revenue from subscription fees will be recognized on a monthly basis, starting from the service activation date."
Revenue recognition clause (milestone-based)
For contracts with clearly defined milestones, where revenue is recognized as each milestone is achieved.
"Revenue will be recognized based on the completion of each milestone as described in the project schedule."
Revenue recognition clause (deferred)
This variation is for cases where payment is made upfront, but revenue is recognized over time.
"Advance payments will be recognized as revenue over the duration of the agreement, starting from the delivery date."
Revenue recognition clause (performance-based)
This clause applies when revenue recognition is tied to achieving specific performance targets.
"Revenue will be recognized upon the achievement of the specified performance targets as set out in Exhibit A."
Revenue recognition clause (fixed contract amount)
For contracts with a fixed revenue amount that is recognized at the point of execution or delivery.
"The total contract value will be recognized as revenue upon final delivery of goods or services."
Revenue recognition clause (long-term project)
For long-term contracts, where revenue is recognized over the project’s duration.
"Revenue will be recognized on a percentage-of-completion basis, with the percentage determined by costs incurred relative to total estimated costs."
Revenue recognition clause (retainer-based)
For contracts based on retainer fees, recognizing revenue on a periodic basis.
"Revenue from retainer fees will be recognized on a monthly basis over the duration of the retainer period."
Revenue recognition clause (contingent on approval)
Revenue is recognized once the customer formally accepts the deliverables.
"Revenue will be recognized once the customer has formally accepted the delivered goods or services, in accordance with the terms outlined in the agreement."
Revenue recognition clause (installment payments)
For contracts where payment is made in installments and revenue is recognized as each payment is made.
"Revenue will be recognized as each installment is received, in alignment with the payment schedule."
Revenue recognition clause (project close-out)
For contracts that recognize revenue upon the official completion and close-out of a project.
"Revenue will be recognized upon project completion and formal acceptance by both parties, as defined in the close-out agreement."
Revenue recognition clause (variable fees)
For contracts where the fee is contingent on usage or performance metrics.
"Revenue will be recognized based on actual usage or milestones reached, as detailed in the performance section of this agreement."
Revenue recognition clause (upfront payments)
For contracts with upfront payments, recognizing revenue over the duration of the agreement.
"Upfront payments will be recognized as revenue over the term of the contract on a pro-rata basis."
Revenue recognition clause (completion of sale)
For contracts where revenue is recognized only after the completion of the sale transaction.
"Revenue will be recognized upon the completion of the sale and delivery of all associated goods or services."
Revenue recognition clause (customer receipt of goods)
For contracts where revenue is recognized when the customer receives the goods.
"Revenue will be recognized when the customer receives the goods or services, as verified by receipt confirmation."
Revenue recognition clause (standard)
This clause is used when revenue is recognized at the time of delivery of products or completion of services.
"Revenue will be recognized when the product is delivered or the service is completed, in accordance with the terms of the agreement."
Revenue recognition clause (project-based)
For contracts involving multiple stages, where revenue is recognized upon the completion of each stage.
"Revenue will be recognized upon the successful completion of each stage of the project, as outlined in the project plan."
Revenue recognition clause (post-delivery)
This variation is applicable when revenue is recognized after the customer has received the goods or services.
"Revenue will be recognized after the customer has received the goods or services and acknowledged receipt."
Revenue recognition clause (annual contract)
For contracts where the entire revenue is recognized over a year, even if paid upfront.
"Revenue will be recognized evenly over a 12-month period, beginning from the service start date."
Revenue recognition clause (quarterly)
For contracts with revenue that is recognized quarterly, often used in long-term service agreements.
"Revenue will be recognized on a quarterly basis, with each quarter beginning from the commencement of the agreement."
Revenue recognition clause (upon invoicing)
For contracts where revenue is recognized once an invoice is generated, even before payment is received.
"Revenue will be recognized upon the issuance of an invoice to the customer for the goods or services provided."
Revenue recognition clause (achievement of goals)
For contracts where revenue is tied to the achievement of specific goals or targets.
"Revenue will be recognized when specific performance goals, as outlined in Exhibit C, are met."
Revenue recognition clause (percentage of completion)
For long-term contracts where revenue is recognized based on the percentage of work completed.
"Revenue will be recognized on a percentage-of-completion basis, with the percentage calculated based on total estimated project costs."
Revenue recognition clause (immediate recognition)
For contracts where revenue is recognized immediately upon the provision of goods or services.
"Revenue will be recognized immediately upon the delivery of goods or completion of services."
Revenue recognition clause (based on customer acceptance)
For contracts where revenue recognition depends on the customer’s formal acceptance.
"Revenue will be recognized when the customer formally accepts the goods or services, as specified in the acceptance clause."
Revenue recognition clause (deferred over contract term)
For contracts where revenue is paid upfront but recognized over the course of the contract term.
"Revenue will be recognized on a pro-rata basis over the term of the contract, starting from the effective date of the agreement."
Revenue recognition clause (upon final approval)
For contracts where revenue is recognized once the final approval is granted by the customer or a third party.
"Revenue will be recognized once the final approval or certification is provided by the customer or a third-party auditor."
Revenue recognition clause (on delivery of key components)
For contracts where revenue is recognized when key components of the agreement are delivered.
"Revenue will be recognized upon the delivery of the main components of the product or service, as described in the agreement."
Revenue recognition clause (payment received)
For contracts where revenue is recognized upon receipt of payment.
"Revenue will be recognized when payment is received, regardless of whether goods or services have been delivered."
Revenue recognition clause (based on customer usage)
For contracts where revenue is recognized based on the customer’s usage of the product or service.
"Revenue will be recognized as the customer uses the product or service, with the total amount based on actual usage."
Revenue recognition clause (upon contract execution)
For contracts where revenue is recognized when the contract is executed, regardless of other terms.
"Revenue will be recognized at the time the contract is fully executed by both parties."
Revenue recognition clause (after service activation)
For contracts where revenue is recognized after the activation of the service.
"Revenue will be recognized once the service has been activated and is available for use by the customer."
Revenue recognition clause (based on customer retention)
For contracts where revenue is recognized based on the customer's ongoing use or retention.
"Revenue will be recognized as the customer continues to use the service, with retention periods used as a measure of recognition."
Revenue recognition clause (after project completion and delivery)
For projects that are large in scope, revenue is recognized only after the project is fully completed and delivered.
"Revenue will be recognized after the completion of the project and delivery of all associated deliverables."
Revenue recognition clause (by revenue type)
For contracts where different types of revenue are recognized at different times, such as product sales and service fees.
"Revenue from product sales will be recognized at the time of delivery, while service revenue will be recognized over the term of the service contract."
Revenue recognition clause (by unit sale)
For contracts where revenue is recognized upon the sale of individual units.
"Revenue will be recognized as each unit of the product is sold to the customer."
Revenue recognition clause (under fixed payment terms)
For contracts with fixed payment schedules, where revenue is recognized as payments are made.
"Revenue will be recognized as payments are received according to the fixed payment schedule in the contract."
Revenue recognition clause (contingent on third-party verification)
For contracts where revenue recognition is contingent on verification from a third party.
"Revenue will be recognized after third-party verification of delivery and acceptance of the goods or services."
Revenue recognition clause (based on delivery timeframes)
For contracts where revenue is recognized once the product or service is delivered within specified timeframes.
"Revenue will be recognized once the product or service is delivered within the agreed-upon timeframes as stated in the agreement."
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.