> I'm not an accountant but presumably you treat it the same as the fairly common purchase+service contract
I'm not a certified accountant either but I took the course just to understand workings of my business.
> they can change to allowing the user to keep the latest version they upgraded to without serious consequence
It'll be in their best interests if they did.
> you can just as easily sell "product version X with one year of updates" which is very common as well, and mark that as revenue right away
You definitely can. But you end up overstating your revenue and in turn your profits. The downside to that is you end up paying high taxes (unless you can minimize your profit by showing a ton of expenses as well). If it was instead treated as Unearned Revenue (which is a liability), you would be stating your true income and showing lower profits and thereby paying lower taxes.
Take for instance the case where your customer purchases a multi-year subscription. This causes a higher cash flow (assets go up) but you won't be overstating your income (as liability goes up by classifying it as Unearned Revenue instead of owner's equity). The liability can be reduced by claiming it as revenue over a multi-year period. If it was marked as revenue at the time of sale, the owner's equity (retained earnings) would go up. That would mean showing higher income which results in higher profits and you end up paying high taxes.
Remember that with unearned revenue you can carry it over to multiple financial years and spread your income between them. You lose out on this important tax saving component if you mark as revenue right away. This also has the advantage of portraying a true picture of your business in your books of accounts.
I'm not a certified accountant either but I took the course just to understand workings of my business.
> they can change to allowing the user to keep the latest version they upgraded to without serious consequence
It'll be in their best interests if they did.
> you can just as easily sell "product version X with one year of updates" which is very common as well, and mark that as revenue right away
You definitely can. But you end up overstating your revenue and in turn your profits. The downside to that is you end up paying high taxes (unless you can minimize your profit by showing a ton of expenses as well). If it was instead treated as Unearned Revenue (which is a liability), you would be stating your true income and showing lower profits and thereby paying lower taxes.
Take for instance the case where your customer purchases a multi-year subscription. This causes a higher cash flow (assets go up) but you won't be overstating your income (as liability goes up by classifying it as Unearned Revenue instead of owner's equity). The liability can be reduced by claiming it as revenue over a multi-year period. If it was marked as revenue at the time of sale, the owner's equity (retained earnings) would go up. That would mean showing higher income which results in higher profits and you end up paying high taxes.
Remember that with unearned revenue you can carry it over to multiple financial years and spread your income between them. You lose out on this important tax saving component if you mark as revenue right away. This also has the advantage of portraying a true picture of your business in your books of accounts.