In short
A contract exists for revenue purposes when the parties have approved it and are committed, each party's rights and the payment terms can be identified, it has commercial substance, and collection of substantially all of the consideration is probable.
Key takeaways
- If the criteria aren't met, cash received is recognized as revenue only when it is nonrefundable and the seller has finished performing or the contract has ended.
- Contracts can be written, oral or implied by customary business practice.
- Contracts with the same customer at about the same time may need to be combined.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under ASC 606, revenue from a performance obligation should be recognized over time if which of the following is true?