Introduction to Revenue Recognition (ASC 606)
What Is Revenue Recognition?
Revenue recognition determines when and how much revenue a company records from contracts with customers. ASC 606 establishes a single, principles-based model that applies across industries, improving consistency and comparability in financial reporting.
The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive.
Note
Revenue is recognized when control of goods or services transfers to the customer—not necessarily when cash is received.
- Applies to contracts with customers.
- Focuses on transfer of control.
- Uses a five-step revenue recognition model.
- Improves consistency across industries.
Summary
ASC 606 provides a standardized framework for recognizing revenue based on the transfer of control to customers.