accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

practices, vendor-specific objective evidence (VSOE) is a method of

revenue recognition The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recog ...

allowed by

US GAAP Generally Accepted Accounting Principles (GAAP or U.S. GAAP, pronounced like "gap") is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC) and is the default accounting standard used by companies based in the Unit ...

that enables companies to recognize revenue on specific items on a multi-item sale based on evidence specific to a company that the product has been delivered.

Description

GAAP Gaap (also ''Tap'', ''Coap'', ''Taob'', ''Goap'') is a demon that is described in demonological grimoires such as ''the Lesser Key of Solomon'', Johann Weyer's ''Pseudomonarchia Daemonum'', and the Munich Manual of Demonic Magic, as well as Jac ...

rules and pronouncements come from the Financial Accounting Standards Board (FASB) which is a non-profit organization that the Securities and Exchange Commission (SEC) has created to promulgate and to amend the rules of GAAP reporting as required. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) instituted SOP 97-2.

Purpose

The purpose of GAAP is to level the playing field for public-company reporting – protecting shareholders and investors by preventing earnings from being stated before they are actually earned. Therefore, a company selling software with a package including installation and a one-year maintenance contract can only record the sale on a deferred basis and earnings are recognized over the term of the maintenance contract. However based on VSOE, allocation occurs by splitting the fee amongst the products and related elements – which is the price established by the vendor for the separate sale of each element and are able to recognize some of the revenue at delivery. This allows companies that sell items that have software licenses, support contracts and hardware items recognizing the revenue of the hardware items on delivery, and the software license or support contract based on the fulfillment of the time the contract it is related to.Why VSOE spells trouble (retrieved on 11-10-2008)
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Common use

VSOE revenue recognition is commonly used by companies that sell software products and services in multiple-element bundles. VSOE focuses on the fair market value of an item sold individually, as opposed to the assigned sales value of the item sold as part of a multiple-element bundle. You can use the VSOE feature to determine VSOE prices of items and defer the recognition of this revenue. The VSOE feature is intended for use by United States companies to maintain GAAP compliance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 97-2 (SOP 97-2) and SOP 98-9 (the residual method).

References

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External links

Program Akuntansi
Accounting terminology Revenue United States Generally Accepted Accounting Principles