ASC 605 vs ASC 606
What changed between ASC 605 and ASC 606?
ASC 605 was the previous US GAAP revenue recognition standard. ASC 606 replaced it, and for commission-driven businesses the headline change was simple to state and expensive to implement.
Under ASC 605, most companies expensed sales commission as it was paid. The deal closed, the commission went out, the cost hit the income statement. Clean, intuitive, and done.
Under ASC 606, commission that is an incremental cost to obtain a contract generally has to be capitalized as an asset and amortized over the period the company expects to benefit.
A cost that used to hit one month now stretches across several years. For a business whose largest go-to-market cost is commission, that is not a technical adjustment. It changes what the company looks like on paper.
The comparison
The data required row is where the real cost of the transition landed. ASC 605 needed a number. ASC 606 needs a number per contract, with a benefit period attached to each, that survives clawbacks, splits, and churn. Many finance teams discovered at that point that their commission process could not produce it.
Why it hit SaaS hardest
The change is largest where the gap between when you pay commission and when you earn the revenue is largest, and that describes subscription businesses exactly.
Sell a widget, get paid, pay the commission: the revenue and the cost arrive together, and expensing immediately was always roughly right. Sell a three-year subscription and pay the full commission at signature, and expensing immediately puts the entire acquisition cost against a fraction of the revenue it will generate. ASC 605 permitted that. ASC 606 does not.
The paradoxical result, and it is worth stating because it surprises people: the new treatment usually makes a fast-growing SaaS company look better, not worse. Front-loading commission expense penalizes growth, because the faster you acquire customers the more acquisition cost you take now against revenue you will earn later. Capitalizing and amortizing removes that distortion.
What this means?
This transition is largely complete, so the practical relevance today is less about migrating and more about understanding why the rules are the way they are. A finance team joining a business that expenses commission immediately should ask why, and the answer might be entirely legitimate, through the practical expedient where the benefit period is a year or less, or it might be that nobody revisited the treatment.
It also explains a great deal about the ICM software market. The reason commission systems exist at a level of granularity that seems excessive is, in significant part, that ASC 606 made deal-level commission data a compliance requirement rather than a nice-to-have. See commission expense recognition.
This page explains general accounting concepts and is not accounting or tax advice. Treatment depends on your facts, your jurisdiction, and your auditor. Confirm with a qualified professional.
How Visdum fits
What ASC 606 asks for, and ASC 605 never did, is commission data at the level of the individual contract.
Visdum calculates commission per deal, so the figure to be capitalized against a given contract is traceable rather than allocated. When a clawback or an adjustment changes what was actually paid on a deal, the audit trail carries the change through, so the capitalized balance and its amortization schedule rest on evidence. That is the specific capability the standard turned from optional into necessary.
Take a self-guided product tour to see this in action, or read the complete commission close playbook.
Related terms
ASC 606 · ASC 606 SaaS Revenue Recognition · Capitalized Commissions · Commission Amortization · Cost to Obtain a Contract
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Frequently asked questions
What is the difference between ASC 605 and ASC 606?
ASC 605 was the previous US GAAP revenue standard, under which most companies expensed sales commission as it was paid. ASC 606 replaced it and requires commission that is an incremental cost of obtaining a contract to be capitalized as an asset and amortized over the expected benefit period instead.
How did ASC 606 change commission accounting?
It moved commission from an immediate expense to a balance sheet asset that unwinds over time. A cost that used to hit one month now stretches across the period the customer is expected to stay. For businesses whose largest go-to-market cost is commission, that materially changes how the accounts read.
Why did ASC 606 affect SaaS companies most?
Because the gap between paying commission and earning the revenue is largest in subscription businesses. Selling a three-year subscription and expensing the whole commission at signature puts the entire acquisition cost against a fraction of the revenue it will generate. ASC 605 permitted that and ASC 606 does not.
Does ASC 606 make a growing company look better or worse?
Usually better, which surprises people. Expensing commission immediately penalizes growth, because the faster you acquire customers the more acquisition cost you recognize now against revenue you will only earn later. Capitalizing and amortizing removes that distortion and gives a truer picture of the underlying margin in the business.
Can a company still expense commission immediately?
Yes, under the practical expedient, where the amortization period would be one year or less. So a business with no meaningful renewal expectation may legitimately expense as it pays. A finance team joining a company that expenses immediately should check whether that reasoning applies or whether nobody revisited the treatment.
What data does ASC 606 require that ASC 605 did not?
Commission per contract rather than a commission total, with an amortization period attached to each deal, and the ability to identify and write off the remaining balance when a customer churns. Many finance teams discovered during the transition that their commission process simply could not produce that.