What are the five steps for revenue recognition under U.S. GAAP (ASC 606)?
There are 5 key steps or principles that are required for revenue to be recognized:
Step 1: Identify the Contract with a Customer: A contract is a written or spoken agreement, generally concerning the sale of goods, employment terms, tenancy of property, and will be enforceable by law.
Step 2: Identify the Performance Obligations in the Contract: A performance obligation is a promise to transfer a distinct good or service, or a series of distinct goods or services that are substantially the same and have the same pattern of transfer, to a given customer.
Step 3: Determine the Transaction Price: The transaction price will almost always be defined as the price point in which the buyer of goods or services as agreed to pay in exchange for those goods or services.
Step 4: Allocate the Transaction Price to the Performance Obligation: Once the transaction price has been determined, the referenced price should be allocated to its performance obligation within the terms of the contract. Performance obligations may either be one single performance obligation or multiple performance obligations
Step 5: Revenue Recognition Once Obligation Has Been Performed: Revenue should be recognized once the obligation has been satisfied and the customer has retained possession of the goods or services. These transactions will be referred to as prepaid cash in exchange for the performance of the obligation at a later date. This is a very common theme within accrual accounting and should be recorded by recognizing cash and unearned revenue. Once revenue has been earned, the liability will be reversed, and revenue will be recognized
Back To All Questions
You might also be interested in...
-
CECL Excel Workbook
If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)
-
Journal Entry for Direct Materials Variance
Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...
-
Understanding Variance Analysis
Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...
CECL Excel Workbook
If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)
Journal Entry for Direct Materials Variance
Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...
Understanding Variance Analysis
Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...
