# ASC 606-10-05: Revenue from Contracts with Customers — Overall — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/606/10/#05-overview-and-background) 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): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:15f5f86db29dbd6ca24d075a5b48772edd22046cd41309e0883e3cd762e5afe0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 606-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/606/10/#05-overview-and-background) SEC content: no ##### [606-10-05-1](https://asc.understandingaccounting.org/asc/606/10/#606-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:31576b7603c9fbc7b285b6dab3e5dbe5872386ba903acc2a0e116270a893305a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Topic specifies the accounting for [revenue](https://asc.understandingaccounting.org/glossary/r/#revenue "Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.") from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](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."). ##### [606-10-05-2](https://asc.understandingaccounting.org/asc/606/10/#606-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:00e2efaee366ccdc6af1d0c8e8e700e7c81c8f3fdad3466b5af08081fd2cdee5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Topic establishes principles for reporting useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity's contracts with customers. ##### [606-10-05-3](https://asc.understandingaccounting.org/asc/606/10/#606-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:5f67289dbc637edb9198ca192a92f2e2a50a134208e356d9cf4b89cc19f87423 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ##### [606-10-05-4](https://asc.understandingaccounting.org/asc/606/10/#606-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:a095268cf4eb9031cc3ce90608e1656fee65788431dcc42b19a71b6a82f7fd1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity recognizes revenue in accordance with that core principle by applying the following steps: 1. a Step 1: Identify the contract(s) with a customer—A [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") is an agreement between two or more parties that creates enforceable rights and obligations. The guidance in this Topic applies to each contract that has been agreed upon with a customer and meets specified criteria. In some cases, this Topic requires an entity to combine contracts and account for them as one contract. This Topic also provides requirements for the accounting for contract modifications. (See paragraphs [606-10-25-1 through 25-13](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-1) .) 2. b Step 2: Identify the performance obligations in the contract—A contract includes promises to transfer goods or services to a customer. If those goods or services are distinct, the promises are [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.") and are accounted for separately. A good or service is distinct if the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and the entity's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. (See paragraphs [606-10-25-14 through 25-22](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-14) .) 3. c Step 3: Determine the transaction price—The [transaction price](https://asc.understandingaccounting.org/glossary/t/#transaction-price "The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.") is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The transaction price can be a fixed amount of customer consideration, but it may sometimes include variable consideration or consideration in a form other than cash. The transaction price also is adjusted for the effects of the time value of money if the contract includes a significant financing component and for any consideration payable to the customer. If the consideration is variable, an entity estimates the amount of consideration to which it will be entitled in exchange for the promised goods or services. The estimated amount of variable consideration will be included in the transaction price only to the extent that it is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. (See paragraphs [606-10-32-2 through 32-27](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-2) .) 4. d Step 4: Allocate the transaction price to the performance obligations in the contract—An entity typically allocates the transaction price to each performance obligation on the basis of the relative [standalone selling prices](https://asc.understandingaccounting.org/glossary/s/#standalone-selling-price "The price at which an entity would sell a promised good or service separately to a customer.") of each distinct good or service promised in the contract. If a standalone selling price is not observable, an entity estimates it. Sometimes, the transaction price includes a discount or a variable amount of consideration that relates entirely to a part of the contract. The requirements specify when an entity allocates the discount or variable consideration to one or more, but not all, performance obligations (or distinct goods or services) in the contract. (See paragraphs [606-10-32-28 through 32-41](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-28) .) 5. e Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation—An entity recognizes revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). The amount of revenue recognized is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For performance obligations satisfied over time, an entity recognizes revenue over time by selecting an appropriate method for measuring the entity's progress toward complete satisfaction of that performance obligation. (See paragraphs [606-10-25-23 through 25-30](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-23) .) ##### [606-10-05-5](https://asc.understandingaccounting.org/asc/606/10/#606-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:cfa076588715406a49534f819db3a647431c8dcae4811b16e8ec5e5bf60bab6d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Topic also includes a cohesive set of disclosure requirements that would result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity's contracts with customers. Specifically, Section 606-10-50 requires an entity to provide information about: 1. a Revenue recognized from contracts with customers, including the disaggregation of revenue into appropriate categories 2. b Contract balances, including the opening and closing balances of receivables, [contract assets](https://asc.understandingaccounting.org/glossary/c/#contract-asset "An entity's right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity's future performance)."), and [contract liabilities](https://asc.understandingaccounting.org/glossary/c/#contract-liability "An entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.") 3. c Performance obligations, including when the entity typically satisfies its performance obligations and the transaction price that is allocated to the remaining performance obligations in a contract 4. d Significant judgments, and changes in judgments, made in applying the requirements to those contracts. Additionally, Section 340-40-50 requires an entity to provide quantitative and/or qualitative information about assets recognized from the costs to obtain or fulfill a contract with a customer. ##### [606-10-05-6](https://asc.understandingaccounting.org/asc/606/10/#606-10-05-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:52.895Z to 2026-09-09T23:17:52.895Z Record version: sha256:02d30dc1ea71d81247e4504828dad95f58d3160c8eeb7e7da47734bfbcb96897 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs presented in **bold type** in this Topic state the main principles. All paragraphs have equal authority.