This free, guided checker walks your finance team through the key decision points for ASC 606 Variable Consideration & Constraint. 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.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Test both explicit terms (discounts, rebates, refunds, credits, incentives, performance bonuses, penalties, rights of return) and implicit variability created by customary business practices, published policies, or a customer's valid expectation of a price concession (ASC 606-10-32-6 through 32-7). Weigh the entity's history of granting concessions and any side agreements, not just the stated price. The common trap is treating an arrangement as fixed-price when a pattern of after-the-fact concessions makes part of the price variable.
No variable consideration identified - determine the transaction price from the fixed amounts under ASC 606-10-32-2.
Official guidance: FASB Accounting Standards Codification
Apply the exception only when the royalty is based on the customer's subsequent sales or usage AND a license of intellectual property is the sole or predominant item to which the royalty relates (ASC 606-10-55-65 through 55-65B). Support the predominant-item conclusion from the economics of the arrangement, not just its labels. The common trap is applying the exception to a fixed minimum guarantee, or to a royalty that predominantly relates to a good or service other than the license.
Royalty exception applies under ASC 606-10-55-65 - do not estimate the royalty in advance.
Official guidance: FASB Accounting Standards Codification
Select the method that better predicts the entitled amount and apply it consistently throughout the contract; this is a facts-based determination, not a free accounting policy choice.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
Work through each ASC 606-10-32-12 factor: susceptibility to influences outside the entity's control, the length of time until the uncertainty resolves, the entity's experience with similar contracts, its practice of offering price concessions, and the breadth of possible outcomes. Weigh them together with historical settlement data rather than relying on any single factor. The common trap is concluding no reversal risk exists simply because the entity expects to collect the estimated amount.
No reversal risk indicators - include the full estimate in the transaction price under ASC 606-10-32-11 and reassess each period under ASC 606-10-32-14.
Official guidance: FASB Accounting Standards Codification
Ask whether it is probable (likely to occur) that a significant reversal in cumulative revenue recognized will not happen once the uncertainty resolves (ASC 606-10-32-11). Assess the full estimate against cumulative revenue to date, not only the current period, and support the conclusion with historical experience on similar contracts. The common trap is testing only the incremental period amount while ignoring cumulative exposure across the contract.
Constraint satisfied - include the full estimate in the transaction price under ASC 606-10-32-11.
Official guidance: FASB Accounting Standards Codification
The constraint operates at the amount level, so include the portion of the estimate that passes the probable test even when the full estimate does not (ASC 606-10-32-11). Identify a floor the entity is highly likely to reach, such as the lowest rebate tier virtually certain to be earned, and support it with experience. The common trap is treating the constraint as all-or-nothing and excluding the entire estimate when a supportable minimum clearly exists.
Include only the supportable minimum amount under ASC 606-10-32-11 and reassess each reporting date under ASC 606-10-32-14. Fully constrained under ASC 606-10-32-11 - exclude the variable consideration from the transaction price until the reversal risk diminishes.
Official guidance: FASB Accounting Standards Codification
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