Revenue recognition (ASC 606)
ASC 606 recognizes revenue when a company transfers promised goods or services to a customer, in the amount it expects to be entitled to. It follows five steps: identify the contract, the performance obligations and the price, allocate the price, and recognize revenue as each obligation is met.
Variable consideration is included only to the extent a significant reversal is not probable. The price is allocated on relative standalone selling prices, and revenue can be recognized at a point in time or over time.
Example. A $1,200 phone sold with a $300 two-year service plan, each with its own standalone price, is split: the phone's share at delivery and the plan's share evenly over 24 months.
By Binod Raj Singh, CPA (licensed in Montana) · Updated for the 2026-2027 exam windows · Last updated 2026-11-05