Revenue from Contracts with Customers

ASC 606 establishes a single, principles-based model for recognizing revenue from contracts with customers: revenue is recognized to depict the transfer of promised goods or services in an amount reflecting the consideration to which the entity expects to be entitled, applied through five steps (606-10-05-4) — identify the contract, identify the performance obligations, determine the transaction price, allocate the price, and recognize revenue when (or as) each performance obligation is satisfied by transferring control. ASC 606-10 supplies the general model, including the contract criteria in 606-10-25-1, the "distinct" test for performance obligations (606-10-25-19), contract combination and modification rules (606-10-25-9 through 25-13), the over-time criteria in 606-10-25-27 versus point-in-time control indicators in 606-10-25-30, and presentation of contract assets, contract liabilities, and receivables (606-10-45-1 through 45-4). ASC 606-952 layers on a narrow practical expedient letting franchisors that are not public business entities treat listed pre-opening services as distinct from the franchise license, and optionally as a single performance obligation. The unifying idea is that control — the ability to direct the use of and obtain substantially all the remaining benefits from an asset — drives both what is promised and when revenue is recognized.

Subtopics

1. 10Overall679 ¶

   ASC 606-10 is the general revenue recognition model for contracts with customers: revenue is recognized to depict the transfer of promised goods or services in an amount reflecting the consideration to which the entity expects to be entitled. It is applied through five steps — identify the contract, identify the performance obligations, determine the transaction price, allocate that price to the performance obligations, and recognize revenue as each obligation is satisfied when the customer obtains control (606-10-05-4). It also sets the scope exclusions (leases, insurance, financial instruments, guarantees, certain nonmonetary exchanges), balance sheet presentation of contract assets/liabilities and receivables, and a broad disclosure package.

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2. 952Franchisors16 ¶

   This subtopic gives franchisors that are not public business entities a practical expedient for identifying performance obligations under Topic 606. Rather than applying the general distinct analysis to the franchise license, a private franchisor may treat listed pre-opening services (site selection, facility assistance, training, manuals, bookkeeping/IT/advisory, quality control) as distinct from the franchise license, and may further elect as an accounting policy to treat all such pre-opening services as a single performance obligation. The expedient affects only step 2 of the model; allocation of transaction price and timing of recognition still follow Topic 606.

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