Contract Modification Schedule
A customer upgrades mid-term. What happens to the revenue you already booked?
Replaces: Rev-rec platforms and controller judgement calls
How to use it
Enter the original contract, how much of it you have delivered, and what the customer has agreed to add. The calculator shows what happens to the revenue schedule under each of the two treatments the standard allows.
Where the number comes from
- The original contract is recognised evenly, so revenue to date is the monthly rate times months elapsed.
- Under prospective treatment, the unrecognised original balance and the new money are added together and spread over the remaining term. Nothing already booked changes.
- Under cumulative catch-up, the revised total is spread across the full revised term, and the shortfall against what you already recognised is booked immediately as a single adjustment.
- The catch-up can be positive or negative depending on whether the modification raised or lowered the effective monthly rate.
- The schedule shows the new monthly figure against what it would have been, so the shape of the change is visible.
What goes wrong
The part most calculators leave out.
- Choosing the treatment is the whole question, and this calculator cannot choose for you. Additional distinct goods or services priced at standalone selling price are treated as a separate contract; a modification that changes the price of what was already promised generally requires cumulative catch-up.
- Cumulative catch-up puts a one-off adjustment into a single period. If it is large, that period stops being comparable, and analysts will ask why.
- Renewals dressed as modifications are a common error. A genuine renewal signed early may be a separate contract entirely rather than a change to the existing one.
- The model assumes even recognition throughout. Contracts with milestone or usage components do not behave this way, and a modification to one of those is materially more complex.
- Sales reports bookings and finance reports revenue. After a modification the two diverge, and reconciling them is the job that never gets budgeted.
- This is a schedule, not an accounting conclusion. The treatment should be agreed with your auditor before it reaches the ledger.
The upgrade that changes last year
A 240,000 contract over 24 months recognises 10,000 a month, and nine months in has booked 90,000. The customer adds 90,000 of extra scope with 18 months left. Treated prospectively, the unrecognised 150,000 plus the new 90,000 is spread over 18 months: 13,333 a month, and the nine months already reported stand. Treated as a cumulative catch-up, the revised 330,000 over the full 27 months implies 12,222 a month, meaning 110,000 should already have been recognised — so 20,000 is booked immediately as an adjustment. Same contract, same cash, and one treatment puts 20,000 into a period that has already been reported on.
Questions
- When is a modification treated as a separate contract?
- When it adds distinct goods or services and the price increase reflects their standalone selling prices. Then the original contract carries on untouched and the addition is accounted for on its own.
- What triggers a cumulative catch-up?
- Broadly, a modification affecting goods or services that are not distinct from what was already promised. Because the remaining performance is a single obligation, the revised price is spread across it and the past is restated.
- Does a modification change total revenue?
- No. It changes when revenue appears. Total revenue over the life of the contract is the total the customer pays either way, which is why the two treatments look so different in one period and identical over the term.
- Does anything I type get sent anywhere?
- No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.
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