SaaS Accounting Rules: Why SaaS Companies Have to Follow Different Accounting Rules than Regular Software Licensing Companies

At the most elementary level, accounting rules are different for SaaS companies compared to traditional software licensing companies. If the basics of formal requirements weren’t diverse enough, the way revenues and costs are accounted for can cause you more confusion. An understanding of SaaS accounting rules can be important for you, your company, and your accounting software implementation.

How SaaS Accounting Rules Are Different Than Regular Accounting Rules

The difference between the two is in the categorization of products and services. SaaS is considered as a sale of a service where software licensing is the sale of a product. This is the basis for everything that separates the two. From the beginning, you must decipher if a sales contract is a licensing arrangement of SaaS or not.

In SaaS Accounting Rules, Hosted is an Option

Obviously most contracts will be software licensing because you can own the rights to the software. This is where it gets complicated; you can have both. If you choose the contractual responsibility of the software and still have it hosted, this is considered a licensing agreement. This is why you must decide whether it is a product or a service. It all goes toward accounting the solution for revenues.

SaaS Accounting Rules: Own Your Software

Buying a hosted service is becoming a popular alternative. Some hosted solutions offer a temporary use of software which allows you to carry out your own software services. This arrangement is commonly referred to as a SaaS arrangement. This same concept can be used for the installation of any on-premise hardware, as well.

Understanding the Lifecycle of SaaS Accounting Rules

Revenues and costs are two of the biggest features in understanding SaaS accounting rules. Once you have established which option is best for your business, then the terms and costs are easy to comprehend. From beginning to end there are specific usage fees and covered expenses that go along with implementing your new software solutions. The more familiar you become with the steps the more you will recognize each process.

SaaS Accounting Rules: Establishing Costs

You must establish a cost to every service used regardless of a host supported system or a typical software licensing agreement. Every aspect has a fee associated with the service or product. Often, you could have difficulty figuring out exactly what label to throw on a particular service. But requirements need precision and you must allocate a fee for each.

SaaS Accounting Rules: Fair Value of Services

In order to sufficiently adjust revenues according to SaaS accounting rules, you will need to describe the hosted service and accounting software features comprehensively. By eliminating substandard practices, you can place a value on a service at the time it is performed.