ASC

ASC 605-985

Software

605 Revenue Recognition

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In brief

IntermediateRevenueRecognitionContingencies and guaranteesIndustry-specific

After ASU 2014-09 gutted nearly all of its content, ASC 605-985 survives only to address recognizing a provision for losses on contracts to deliver software or a software system (alone or with other products and services) that require significant production, modification, or customization of software. It expressly provides no revenue recognition guidance; revenue for such arrangements is accounted for under Topic 606, with the loss provision guidance in Subtopic 605-35. If it becomes probable that the transaction price allocated to an unsatisfied or partially unsatisfied performance obligation will produce a loss, that loss is recognized under Topic 450.

Key points (6)
  • The Subtopic's sole remaining purpose is guidance on recognizing a provision for losses on software contracts requiring significant production, modification, or customization of software (605-985-05-1).
  • The Subtopic does not provide any revenue recognition guidance (605-985-05-2); the legacy software revenue model was superseded by ASU 2014-09.
  • Scope is limited to arrangements to deliver software or a software system, alone or with other products or services, that require significant production, modification, or customization of software, and it applies to all entities (605-985-15-2; 605-985-15-3(e)).
  • When such significant production, modification, or customization exists, the entire arrangement is accounted for under Topic 606 and Subtopic 605-35 on provision for losses on contracts (605-985-25-2).
  • If it becomes probable that the transaction price allocated to an unsatisfied or partially unsatisfied performance obligation will result in a loss on that performance obligation, the loss is recognized pursuant to Topic 450 (605-985-25-7).
  • Scope otherwise follows Section 985-10-15 of the Overall Software Subtopic, subject to the qualifications above (605-985-15-1).

For students. This is the hollowed-out shell of the old SOP 97-2 software revenue model (VSOE, multiple-element software arrangements) — nearly everything was superseded by ASU 2014-09. The common mistake is citing 605-985 for software revenue recognition; it now expressly gives none (605-985-05-2), and the only live rule is loss recognition on software contracts requiring significant production, modification, or customization.

software arrangementssignificant production, modification, or customizationprovision for losses on contractsperformance obligationtransaction price allocationloss contingencysuperseded legacy guidance

Machine-generated study aid for ASC 605-985. Check the source paragraphs below.

605-985-00Status

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605-985-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
Authorization Code Superseded Accounting Standards Update No. 2014-09 05/28/2014
Contract Added Accounting Standards Update No. 2014-09 05/28/2014
Core Software Superseded Accounting Standards Update No. 2014-09 05/28/2014
Customer Amended Accounting Standards Update No. 2014-09 05/28/2014
Delivery Superseded Accounting Standards Update No. 2014-09 05/28/2014
Enhancement Superseded Accounting Standards Update No. 2014-09 05/28/2014
Fixed Fee Superseded Accounting Standards Update No. 2014-09 05/28/2014
Hosting Arrangement Superseded Accounting Standards Update No. 2014-09 05/28/2014
Hosting Arrangement Amended Accounting Standards Update No. 2018-15 08/29/2018
Licensing Superseded Accounting Standards Update No. 2014-09 05/28/2014
Maintenance Superseded Accounting Standards Update No. 2014-09 05/28/2014
Milestone (1st def.) Superseded Accounting Standards Update No. 2014-09 05/28/2014
Off-the-Shelf Software Superseded Accounting Standards Update No. 2014-09 05/28/2014
Performance Obligation Added Accounting Standards Update No. 2014-09 05/28/2014
Platform Superseded Accounting Standards Update No. 2014-09 05/28/2014
Platform-Transfer Right Superseded Accounting Standards Update No. 2014-09 05/28/2014
Postcontract Customer Support Superseded Accounting Standards Update No. 2014-09 05/28/2014
Probable (2nd def.) Added Accounting Standards Update No. 2014-09 05/28/2014
Product Master Superseded Accounting Standards Update No. 2014-09 05/28/2014
Reseller (1st def.) Superseded Accounting Standards Update No. 2014-09 05/28/2014
Revenue Added Accounting Standards Update No. 2014-09 05/28/2014
Site License Superseded Accounting Standards Update No. 2014-09 05/28/2014
Transaction Price Added Accounting Standards Update No. 2014-09 05/28/2014
Upgrade (2nd def.) Superseded Accounting Standards Update No. 2014-09 05/28/2014
Upgrade Right Superseded Accounting Standards Update No. 2014-09 05/28/2014
User Superseded Accounting Standards Update No. 2014-09 05/28/2014
When-and-If-Available Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-05-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
985-605-05-2 Added Accounting Standards Update No. 2014-09 05/28/2014
985-605-05-3 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-05-4 Superseded Accounting Standards Update No. 2014-09 05/28/2014
958-605-15-3 Amended Accounting Standards Update No. 2014-09 05/28/2014
985-605-15-3 Amended Accounting Standards Update No. 2009-14 10/07/2009
985-605-15-4 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-15-4 Amended Accounting Standards Update No. 2009-14 10/07/2009
985-605-15-4A Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-15-4A Added Accounting Standards Update No. 2009-14 10/07/2009
985-605-25-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-25-2 Amended Accounting Standards Update No. 2014-09 05/28/2014
985-605-25-3 through 25-6
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-25-7 Amended Accounting Standards Update No. 2014-09 05/28/2014
985-605-25-8 through 25-107
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-25-10 Amended Accounting Standards Update No. 2009-14 10/07/2009
985-605-50-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-50-1 Added Accounting Standards Update No. 2009-14 10/07/2009
985-605-55-2 through 55-119
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-55-121 through 55-236
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
985-605-55-211 through 55-236
 Added Accounting Standards Update No. 2009-14 10/07/2009
985-605-65-1 Added Accounting Standards Update No. 2009-14 10/07/2009

605-985-05Overview and Background

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605-985-05-1
This Subtopic provides guidance on the recognition of a provision for losses when a contract to deliver software or a software system, either alone or together with other products and services, requires significant production, modification, or customization of software.
605-985-05-2
This Subtopic does not provide any revenue recognition guidance.

605-985-15Scope and Scope Exceptions

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Overall Guidance

605-985-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 985-10-15, with specific qualifications and exceptions noted below.

Entities

605-985-15-2
The guidance in this Subtopic applies to all entities.

Transactions

605-985-15-3
The guidance in this Subtopic applies to the following transactions and activities:
  1. a
    Subparagraph superseded by Accounting Standards Update No. 2014-09.
  2. b
    Subparagraph superseded by Accounting Standards Update No. 2009-14.
  3. c
    Subparagraph superseded by Accounting Standards Update No. 2014-09.
  4. d
    Subparagraph superseded by Accounting Standards Update No. 2014-09.
  5. e
    Arrangements to deliver software or a software system, either alone or together with other products or services that require significant production, modification, or customization of software (see Topic 606 on revenue from contracts with customers and Subtopic 605-35 on provision for losses on contracts).

605-985-20Glossary

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605-985-25Recognition

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Software Requiring Significant Production, Modification, or Customization

605-985-25-2
If an arrangement to deliver software or a software system, either alone or together with other products or services, requires significant production, modification, or customization of software, the entire arrangement shall be accounted for in conformity with Topic 606 on revenue from contracts with customers and Subtopic 605-35 on provision for losses on contracts.

Determining the Need for a Provision for Loss on a Contract

605-985-25-7
If it becomes probable that the amount of the transaction price allocated to an unsatisfied or partially unsatisfied performance obligation in accordance with Topic 606 on revenue from contracts with customers will result in a loss on that performance obligation, the loss shall be recognized pursuant to Topic 450.

605-985-50Disclosure

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605-985-55Implementation Guidance and Illustrations

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605-985-65Transition and Open Effective Date Information

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605-985-65-1
Paragraph superseded on 12/13/2011 after the end of the transition period stated in Accounting Standards Update No. 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements.

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