ASC 606, or Revenue from Contracts with Customers, is a newer accounting standard that was issued by the Financial Accounting Standards Board (FASB) in 2014. The standard is designed to provide more transparency and comparability in the way that companies recognize revenue from their contracts with customers, including sales commissions.
Public companies has to adopted ASC 606 in 2018. Then, in 2021, private companies were invited to follow suit.
ASC 606 is important because it can help investors, creditors, and other stakeholders to better understand a company’s financial performance. By providing more transparency in the way that revenue is recognized, ASC 606 can help reduce the risk of earnings management and to improve the quality and consistency of financial reporting.
ASC 606 is a complex standard, and there are a number of different ways that it can be applied. Companies that are subject to ASC 606 will need to carefully consider the specific requirements of the standard in order to ensure that they are in compliance.
Here are some of the key provisions of ASC 606:
- Revenue is recognized when or as the entity satisfies a performance obligation. This means that revenue is not recognized until the goods or services have been transferred to the customer and the customer has obtained control of those goods or services.
- The transaction price is allocated to the performance obligations in the contract. This means that the total amount of revenue recognized will be based on the fair value of the goods or services that have been transferred to the customer.
- Revenue is recognized over time if the performance obligations are satisfied over time. This means that revenue will be recognized on a straight-line basis over the period of time that it takes to satisfy the performance obligations.
ASC 606 is a significant change from the previous revenue recognition standard, and it is important for companies to understand the requirements of the standard in order to ensure that they are in compliance.
Learn more about QuotaPath’s Ledger platform, which helps companies remain compliant with ASC 606 regarding the amortization of sales commissions.