RECOGNIZE YOUR REVENUE
IN 5 STEPS
B U S I N E S S E S T H AT F I L E G A A P F I N A N C I A L S TAT E M E N T S M U S T
TA K E T H E F O L L O W I N G S T E P S T O R E C O G N I Z E R E V E N U E :
STEP 1: Identify your contracts with
customers. These contracts may be writ-
ten, oral or implied and should outline
the answers regarding who, what and
how much.
STEP 2: Identify your performance obli-
gations. A single contract can have more
than one performance obligation and
each performance obligation must be
considered. For example, if a customer
purchases an item from your online store
and you offer free shipping, your perfor-
mance obligation would be 1) the item
and 2) shipping costs.
STEP 4: Allocate the transaction price
to performance obligations. If you have
multiple performance obligations, be
sure that your transaction price accom-
modates each performance obligation
on a standalone basis.
STEP 5: Recognize revenue. Your com-
pany’s revenue will be recognized at a
point in time determined by the contract.
This might be when a good or service
is transferred to the customer. Or in the
case of a construction project, for ex-
ample, as performance obligations are
completed.
STEP 3: Determine the transaction price.
You’ll need to figure out the price of a
product after the application of any dis-
counts, the time value associated, the
cost of non-cash items and other amounts
that may be payable to the customer.
Visit www.reacpa.com/episode-196 and listen to episode 196, “Revenue
Recognition: Are You Doing It Wrong?” on unsuitable on Rea Radio to learn
even more about the new standard from Chris and Katie.