ASC 606
ASC 606 is the US accounting standard governing revenue from contracts with customers, which sets out a five-step model for determining how much revenue to recognise and when.
Also called topic 606.
The five steps are: identify the contract, identify the performance obligations within it, determine the transaction price, allocate that price across the obligations, and recognise revenue as each one is satisfied. IFRS 15 is the equivalent international standard and is substantially aligned.
For usage-based contracts the difficulty concentrates in steps three and five, because the transaction price is variable and satisfaction is measured by consumption rather than by elapsed time.
Common questions
- What are the five steps of ASC 606?
Identify the contract with the customer, identify the performance obligations in it, determine the transaction price, allocate that price to the performance obligations, and recognise revenue as each obligation is satisfied.
- What is the difference between ASC 606 and IFRS 15?
ASC 606 is the US standard under GAAP and IFRS 15 is the international equivalent. The two were developed jointly and are substantially converged, with differences confined to a small number of areas such as collectibility assessment and certain disclosures.
- Does ASC 606 apply to usage-based contracts?
Yes. Usage-based consideration is variable consideration under ASC 606, and revenue is generally recognised as the usage occurs, because that is when the performance obligation is satisfied.