Performance Obligations
Identifying Promises to Customers
A performance obligation is a promise to transfer a distinct good or service to a customer. Contracts may contain one or multiple performance obligations, and revenue must be allocated to each obligation based on its standalone selling price.
- Goods sold separately often represent distinct obligations.
- Services may be distinct if customers benefit independently.
- Bundles often contain multiple obligations.
- Revenue is recognized as each obligation is satisfied.
Note
Identifying separate performance obligations is critical because it determines the timing of revenue recognition.
Summary
Performance obligations define exactly what the company has promised to deliver to the customer.