# ASC 340-40-25: Other Assets and Deferred Costs — Contracts with Customers — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/340/40/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:47a557fe75b87bc0fc9a34f4a5309a589fea280d9bd711dfcde5f20c991c8750 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 340-40-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/340/40/#25-recognition) SEC content: no #### Contract Costs ##### [340-40-25-1](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:137da2a8902473362c929cd11a2895b0063f2be2f20c20b3da9d4793194b8da1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. **An entity shall recognize as an asset the incremental costs of obtaining a** [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") **with a** [customer](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") **if the entity expects to recover those costs.** ##### [340-40-25-2](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:1de5141167b672ec645fb06b7fd58945038706bf93b0773946b9f0f66cb6bd2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission). ##### [340-40-25-3](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:b4e78331cca9917724f8597e8b6e1b71939a0b5d867da1109f6a4659e6a1eb32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognized as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. ##### [340-40-25-4](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:7f12d17f7c98ac9772d13588d01533db3633c1b6ac717fd492e951b5579404ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a practical expedient, an entity may recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. ##### [340-40-25-5](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:28947de1eb8057c886dc5fd4e6b33fcc29cf364181bbec23934b4db51c30a1cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. **An entity shall recognize an asset from the costs incurred to fulfill a** [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") **only if those costs meet all of the following criteria:** 1. a **The costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved).** 2. b **The costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy)** [performance obligations](https://asc.understandingaccounting.org/glossary/p/#performance-obligation "A promise in a contract with a customer to transfer to the customer either: A good or service (or a bundle of goods or services) that is distinct A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.") **in the future.** 3. c **The costs are expected to be recovered**. ##### [340-40-25-6](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:5f053d4235d777c945c0668a7113a9183f27c83e5c7e227ce33906c25cd24f3e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For costs incurred in fulfilling a contract with a [customer](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") that are within the scope of another Topic (for example, Topic 330 on inventory; paragraphs [340-10-25-1 through 25-4](https://asc.understandingaccounting.org/asc/340/10/#340-10-25-1) on preproduction costs related to long-term supply arrangements; Subtopic 350-40 on internal-use software; Topic 360 on property, plant, and equipment; or Subtopic 985-20 on costs of software to be sold, leased, or otherwise marketed), an entity shall account for those costs in accordance with those other Topics or Subtopics. ##### [340-40-25-7](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:cfdd1908f5454178357265cec167fed59dd3f3da177119a3524e8c6d9a272b11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Costs that relate directly to a contract (or a specific anticipated contract) include any of the following: 1. a Direct labor (for example, salaries and wages of employees who provide the promised services directly to the customer) 2. b Direct materials (for example, supplies used in providing the promised services to a customer) 3. c Allocations of costs that relate directly to the contract or to contract activities (for example, costs of contract management and supervision, insurance, and depreciation of tools and equipment used in fulfilling the contract) 4. d Costs that are explicitly chargeable to the customer under the contract 5. e Other costs that are incurred only because an entity entered into the contract (for example, payments to subcontractors). ##### [340-40-25-8](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:19.382Z to 2026-09-09T23:56:19.382Z Record version: sha256:86bea2cbc4dfcffbef49df4a0e6f2e79ea9e65f4912784ce99392eb4e3e21b49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall recognize the following costs as expenses when incurred: 1. a General and administrative costs (unless those costs are explicitly chargeable to the customer under the contract, in which case an entity shall evaluate those costs in accordance with paragraph [340-40-25-7](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-7)) 2. b Costs of wasted materials, labor, or other resources to fulfill the contract that were not reflected in the price of the contract 3. c Costs that relate to satisfied performance obligations (or partially satisfied performance obligations) in the contract (that is, costs that relate to past performance) 4. d Costs for which an entity cannot distinguish whether the costs relate to unsatisfied performance obligations or to satisfied performance obligations (or partially satisfied performance obligations).