ASC 606 is a major update to accounting standards that was enacted in 2017 for public companies and 2019 for private companies. ASC 606 primarily deals in revenue recognition and how to make it more consistent across companies and industries. In this blog, we’ll summarize the five steps of ASC 606. Click here for more information about the ASC606 webinar.
Identify the Contract
A signed contract is not required under the new ASC 606 standards. A contract can be enforced if these essential parts:
- Approval from all parties
- Committal from all parties to fulfill their obligations
- Identifiable rights for each party
- Identifiable payment terms
- The contract has commercial substance
- Collectibility is likely
Identify the Performance Obligation
This means to identify the promise in the contract to transfer goods or services to the customer. The goods or services should be distinct and easily identifiable. You can consider something a good or service in a contract if:
- The customer can benefit from said good or service
- It can be transferred without dependence on other contracted performance obligations
Determine the Transaction Price
This is what the customer will owe to the entity, whether the payment be in cash or in a non-cash form.
Allocate the Transaction Price
The transaction price should be allocated if the product is software-as-a-service, or SaaS. Since payment is recurring and continuous, there is an ongoing performance obligation. The seller can split this amount to be recognized as revenue upon each delivery.
Recognize Revenue
Revenue is recorded and recognized in the ledger.
Learn More in an ASC606 Webinar
As you can see, ASC 606 is exceedingly important to accurately recognize revenue. Accounting teams have been doing this for years now, but it helps to make sure all of your teams are informed and up to date on what ASC 606 means for companies and how it affects them. With an ASC606 webinar, you can learn how ASC 606 impacts businesses, the hidden traps you should be looking out for, and you can learn how sales ops can help your accounting team adhere to these standards more easily. Sign your team up for an ASC 606 webinar if you want to stay ahead of the curve this year.
Read a similar blog about future of revops here at this page.