Revenue Recognition

Revenue recognition is vital for marketplaces because it determines when and how they record income from sales, impacting financial health, compliance, and trust, despite transactions involving multiple parties. Nautical's ledger system accurately captures marketplace transactions, offering the following benefits:

Complex multi-seller transactions. Manage complex, multi-seller transactions confidently, knowing Nautical tracks and balances every transaction and accurately accrues revenue to the correct party.
Seller payout flexibility. As a marketplace operator, you can decide when to recognize revenue for sellers.
Clear financial breakdowns. A clear and reliable financial breakdown on the seller payout statement fosters trust amongst sellers regarding how their payouts are calculated.

Financial ledgers

Nautical uses a ledger system based on double-entry accounting, where every financial transaction is recorded and balanced with equal debits and credits. The ledger is made up of several accounts for precise financial management, recording how funds flow between the marketplace, buyers, and sellers and when revenue is accrued.

When actions like placing an order, fulfilling an item, or processing seller payouts occur, entries are automatically recorded in the appropriate ledger accounts. Each financial event affects at least two accounts, keeping the ledger balanced.

For example, when the marketplace issues a payment to a seller, the ledger debits the "Seller payable" account and credits the "Seller payout disbursement" account, thereby decreasing the balance the marketplace owes to the seller and recording the outflow of funds.

Accounting standards

Generally accepted accounting principles (GAAP) outline that revenue should be recognized when it is realized and earned, which may occur at a different time than when funds are received from the buyer. ASC 606 outlines that e-commerce companies should recognize revenue at the time of order fulfillment.

Accurate revenue recognition is essential for marketplaces, where transactions involve multiple parties and various pricing structures, commissions, and fees.

Revenue accrual

Nautical initially records revenue as deferred until the marketplace can recognize the income as earned, at which time it is split appropriately between the marketplace and its sellers. The revenue accrual mode determines when revenue is accrued and recognized as earned. Once accrued, the balance is queued for seller payout.