{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/405/20/#40-derecognition","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"405","topic_title":"Liabilities","subtopic":"405-20","subtopic_title":"Extinguishments of Liabilities","section":{"number":"40","label":"40 Derecognition","anchor":"40-derecognition","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"405-20-40-1","para":"40-1","html":"
Unless addressed by other guidance (for example, paragraphs
405-20-40-3 through 40-4
or paragraphs
606-10-55-46 through 55-49
), a debtor shall derecognize a liability if and only if it has been extinguished. A liability has been extinguished if either of the following conditions is met:
  1. a
    The debtor pays the creditor and is relieved of its obligation for the liability. Paying the creditor includes the following:
    1. 1
      Delivery of cash
    2. 2
      Delivery of other financial assets
    3. 3
      Delivery of goods or services
    4. 4
      Reacquisition by the debtor of its outstanding debt securities whether the securities are cancelled or held as so-called treasury bonds.
  2. b
    The debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. For purposes of applying this Subtopic, a sale and related assumption effectively accomplish a legal release if nonrecourse debt (such as certain mortgage loans) is assumed by a third party in conjunction with the sale of an asset that serves as sole collateral for that debt.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
818-10-65-1Unless addressed by other guidance (for example, paragraphs
405-20-40-3 through 40-4
or paragraphs
606-10-55-46 through 55-49
), a debtor shall derecognize a liability if and only if it has been extinguished. A liability has been extinguished if either of the following conditions is met:
  1. a
    The debtor pays the creditor and is relieved of its obligation for the liability. Paying the creditor includes the following:
    1. 1
      Delivery of cash
    2. 2
      Delivery of other financial assets
    3. 3
      Delivery of goods or services
    4. 4
      Reacquisition by the debtor of its outstanding debt securities whether the securities are cancelled or held as so-called treasury bonds
    5. 5
      Delivery of environmental credits.
  2. b
    The debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. For purposes of applying this Subtopic, a sale and related assumption effectively accomplish a legal release if nonrecourse debt (such as certain mortgage loans) is assumed by a third party in conjunction with the sale of an asset that serves as sole collateral for that debt.
","snippet":"Unless addressed by other guidance (for example, paragraphs 405-20-40-3 through 40-4 or paragraphs 606-10-55-46 through 55-49), a debtor shall derecognize a liability if and only if it has been extinguished. A liability …","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:22adfa6fd0ccbd30c5332e75963dcb8842d6abf4f020f80a1f23c8993449081e","downloaded_from":"2026-09-10T00:14:00.411Z","last_downloaded_at":"2026-09-10T00:14:00.411Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482580","source_sha256":"5a9b2ec6d14fc7fd862d1da1060cecfb7c92ac4a0fff80db2ed66192502e5aa0"}},{"citation":"405-20-40-2","para":"40-2","html":"
If a creditor releases a debtor from primary obligation on the condition that a third party assumes the obligation and that the original debtor becomes secondarily liable, that release extinguishes the original debtor's liability. However, in those circumstances, whether or not explicit consideration was paid for that guarantee, the original debtor becomes a guarantor. As a guarantor, it shall recognize a guarantee obligation in the same manner as would a guarantor that had never been primarily liable to that creditor, with due regard for the likelihood that the third party will carry out its obligations. The guarantee obligation shall be initially measured at fair value, and that amount reduces the gain or increases the loss recognized on extinguishment. See Topic 460 for accounting guidance related to guarantees.
","snippet":"If a creditor releases a debtor from primary obligation on the condition that a third party assumes the obligation and that the original debtor becomes secondarily liable, that release extinguishes the original debtor's …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c6ee59aef484d22a891cc5cad915107c1c180392417f5322c61e5c7d4687b727","downloaded_from":"2026-09-10T00:14:00.411Z","last_downloaded_at":"2026-09-10T00:14:00.411Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482580","source_sha256":"5a9b2ec6d14fc7fd862d1da1060cecfb7c92ac4a0fff80db2ed66192502e5aa0"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fde4aa2a132288c6201e9ad85476ac926bf94d1997f63a8f50e382e1e7750007","downloaded_from":"2026-09-10T00:14:00.411Z","last_downloaded_at":"2026-09-10T00:14:00.411Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482580","source_sha256":"5a9b2ec6d14fc7fd862d1da1060cecfb7c92ac4a0fff80db2ed66192502e5aa0"}},{"block":null,"heading":"Prepaid Stored-Value Products","paragraphs":[{"citation":"405-20-40-3","para":"40-3","html":"
Prepaid stored-value products are products in physical and digital forms with stored monetary values that are issued for the purpose of being commonly accepted as payment for goods or services. While the holder of a prepaid stored-value product also may be permitted to redeem the product for cash, prepaid stored-value products do not include products that only can be redeemed by the product holder for cash (for example, nonrecourse debt, bearer bonds, or trade payables). Examples of prepaid stored-value products include prepaid gift cards issued on a specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler's checks. The derecognition guidance in paragraph 405-20-40-4 does not apply to liabilities related to either of the following:
  1. a
    Prepaid stored-value products (or portions of those products) for which any breakage (that is, the portion of the dollar value of prepaid stored-value products that ultimately is not redeemed by product holders for cash or not used to purchase goods and/or services) must be remitted in accordance with unclaimed property laws
  2. b
    Prepaid stored-value products that are attached to a segregated bank account like a customer depository account.
The guidance also does not apply to customer loyalty programs or transactions within the scope of other Topics (for example, Topic 606 on revenue from contracts with customers).
","snippet":"Prepaid stored-value products are products in physical and digital forms with stored monetary values that are issued for the purpose of being commonly accepted as payment for goods or services. While the holder of a prep…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c23b8d69b3938c3116478cc5eeaf408381fe574a2c12cd1467ebc90408fe2857","downloaded_from":"2026-09-10T00:14:00.411Z","last_downloaded_at":"2026-09-10T00:14:00.411Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482580","source_sha256":"5a9b2ec6d14fc7fd862d1da1060cecfb7c92ac4a0fff80db2ed66192502e5aa0"}},{"citation":"405-20-40-4","para":"40-4","html":"
If an entity expects to be entitled to a breakage amount for a liability resulting from the sale of a prepaid stored-value product in the scope of paragraph 405-20-40-3, the entity shall derecognize the amount related to the expected breakage in proportion to the pattern of rights expected to be exercised by the product holder only to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. If an entity does not expect to be entitled to a breakage amount for prepaid stored-value products in the scope of paragraph 405-20-40-3, the entity shall derecognize the amount related to breakage when the likelihood of the product holder exercising its remaining rights becomes remote. At the end of each period, an entity shall update the estimated breakage amount to represent faithfully the circumstances present at the end of the period and the changes in circumstances during the period. Changes to an entity's estimated breakage amount shall be accounted for as a change in accounting estimate in accordance with paragraphs
250-10-45-17 through 45-20
.
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