Accounting for multi-element sales has quickly become one of the most complex areas of revenue recognition, a topic that affects most technology companies.  A multi-element sale occurs when two or more related product components are sold together at the same time.

The classic example of the multi-element sale is software plus maintenance. These are normally sold as two separate line items, but are inextricably related to each other, so they constitute a multi-element sale.  Beyond this relatively simple example of a multi-element sale, think of all of the everyday consumer products that we use where software is embedded, such as a mobile device.  Or think of an online subscription that includes setup as well as ongoing service.  In accounting terms, a mobile device is hardware, software and service. These multiple elements need to be treated separately in order to properly determine revenue.

The other day I saw an advertisement that said: “60% of the new products introduced in North America this year are ‘smart’ products – products with some sort of ‘smart’ or intelligent feature associated with them.”  As technology becomes more pervasive, more products become subject to the rules governing multi-element sales.  At what point do technology revenue recognition rules become the norm instead of the exception?