Under current standards a company identifies the contract, the separate promises in it, the total price, how the price splits across those promises, and then books revenue as each promise is satisfied. A hardware sale is recognised on delivery; a three-year service plan is spread across three years.
The rules matter for traders because how a company splits a bundle changes how front-loaded its revenue looks. Aggressive splitting pulls revenue forward and flatters growth today at the cost of tomorrow.
Example: Northwind Tools sells a $600 kit bundled with a $180 three-year warranty. It books $600 on delivery and recognises the $180 at $5 a month, leaving $180 in deferred-revenue on day one.
Related: revenue