This free, guided checker walks your finance team through the key decision points for ASC 606 Revenue Contract Assessment. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Assess: (1) both parties approved the contract, (2) each party's rights are identifiable, (3) payment terms are identified, (4) commercial substance exists, and (5) collection of substantially all consideration is probable.
No contract exists under ASC 606-10-25-1. Record any consideration received as a liability under ASC 606-10-25-7 and reassess the criteria each reporting period.
Official guidance: FASB Accounting Standards Codification
Identify all explicit and implicit promises. SaaS arrangements, construction contracts, and product-plus-service bundles frequently contain multiple deliverables requiring separate performance obligation identification.
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Official guidance: FASB Accounting Standards Codification
Capable of being distinct: the customer can benefit from the good or service on its own or with readily available resources. Separately identifiable: the promise is not highly interrelated, highly interdependent, or a significant fulfillment input for another promise.
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Official guidance: FASB Accounting Standards Codification
Variable consideration includes discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or royalties. Estimate using the expected value or most likely amount method, whichever better predicts the amount.
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Official guidance: FASB Accounting Standards Codification
Estimate variable consideration using the expected value or most likely amount method, then apply the constraint in ASC 606-10-32-11: include amounts only to the extent that a significant revenue reversal is not probable. Also consider any significant financing component, noncash consideration, and consideration payable to the customer.
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Official guidance: FASB Accounting Standards Codification
Criterion (a): customer simultaneously receives and consumes benefits. Criterion (b): entity creates or enhances an asset the customer controls. Criterion (c): the asset has no alternative use and the entity has an enforceable right to payment for performance completed to date.
Point in time recognition. Recognize revenue when the customer obtains control under ASC 606-10-25-30.
Official guidance: FASB Accounting Standards Codification
If progress cannot be measured but costs are expected to be recovered, recognize revenue only to the extent of costs incurred until a reasonable measure of progress can be established. Re-evaluate each reporting period.
Over time recognition under ASC 606-10-25-27. Apply a single measure of progress under ASC 606-10-25-31 that faithfully depicts the transfer of control. Progress not reasonably measurable. Recognize revenue only to the extent of costs incurred that are expected to be recovered under ASC 606-10-25-37.
Official guidance: FASB Accounting Standards Codification
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