Revenue Recognition

Question 1

5 steps of revenue recognition

Answer 1

1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price to each performance obligation
5. Recognize revenue when each obligation is satisfied

Question 2

What criteria must be met for a contract?

Answer 2

• be approved by all parties
• rights regarding goods/services to be transferred can be identified
• payment terms can be identified
• contract has commercial substance
• probable the entity will collect the consideration to which it is entitled, considering only the customer’s ability and intention to pay

Question 3

A vendor shall combine two or more contracts entered into at or near the same time with the same customer and account for the contracts as a single contract if one or more of the following criteria are met:

Answer 3

• the contracts are negotiated as a package with a single commercial objective
• the amount of consideration to be paid in one contract depends on the price or perforamnce of the other contract
• the goods/services promised in the contracts are a single performance obligation