ASC Topic 705
Cost of Sales and Services
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ASC 705 covers cost of sales and services, but it is mostly a set of pointers rather than a freestanding body of rules. The Overall Subtopic (705-10) explains that, under the Codification's asset liability model, cost recognition guidance actually lives in the related asset Topics — Topic 330 (inventory), Topic 360 (PP&E), Topic 606 and Subtopic 340-40 (contracts with customers), Topic 718 (share-based payment) — and the industry subtopics (705-905 cooperatives, 705-912 federal government contractors, 705-926 films, 705-976 retail land, 705-985 software) are likewise link-only or largely superseded by ASU 2014-09. The one substantive body of guidance is ASC 705-20, which requires a customer to treat consideration received from a vendor as a reduction of the purchase price of goods or services acquired (705-20-25-1) unless it pays for a distinct good or service, reimburses a specific incremental identifiable selling cost, or reimburses a qualifying consumer sales incentive. The takeaway: know where to look for cost guidance, and default to purchase-price reduction for vendor consideration.
Subtopics
- 10Overall25 ¶
ASC 705-10 is a "pointer" subtopic: it contains almost no substantive rules of its own and instead links to the Topics where cost of sales and services guidance actually resides. This structure follows from the Codification's asset liability model, under which costs are recognized as assets are sold or remeasured (or liabilities incurred), so the guidance sits in Topics such as 330 (inventory), 360 (PP&E), 606/340-40 (customer contracts), and 718 (share-based payment).
- 20Accounting for Consideration Received from a Vendor14 ¶
ASC 705-20 governs how a customer (often a reseller) accounts for cash, credits, coupons, or vouchers received from a vendor. The default rule is that vendor consideration reduces the purchase price of the goods or services acquired (705-20-25-1), unless it is payment for a distinct good or service transferred to the vendor, a reimbursement of specific incremental costs incurred to sell the vendor's products, or reimbursement for the vendor's sales incentives offered directly to consumers. The Subtopic also prescribes systematic and rational recognition of volume/loyalty rebates payable under binding arrangements.
- 905Agriculture5 ¶
ASC 705-905 is a "link-only" subtopic: it contains no substantive rules of its own and simply directs agricultural cooperatives to the guidance elsewhere in the Agriculture topic on when unprocessed products received from patrons are charged to cost of goods sold. The core point is that a COGS charge (and the related liability to patrons) arises only when the cooperative's board of directors assigns an amount to those unprocessed products.
- 912Contractors—Federal Government7 ¶
ASC 705-912 formerly contained cost-of-sales guidance for contractors with the federal government, addressing matters such as contract costs and related recognition and disclosure. Every paragraph in the subtopic (scope, recognition, and disclosure) was superseded by ASU 2014-09 (Revenue from Contracts with Customers). The subtopic is therefore an empty shell; federal government contractors now apply ASC 606 and the cost guidance in ASC 340-40.
- 926Entertainment—Films5 ¶
This Subtopic governs how film production and distribution entities account for costs of manufacturing or duplicating products held for sale, such as videocassettes and digital video discs. Manufacturing/duplication costs are charged to expense on a unit-specific basis when the related product revenue is recognized (705-926-25-1). The cost of theatrical film prints is instead expensed over the period benefited (705-926-25-2).
- 976Real Estate—Retail Land5 ¶
ASC 705-976 addresses the measurement of costs related to retail land sales, using the same scope as the Real Estate—Retail Land Overall Subtopic (976-10-15). Its substantive initial measurement guidance was superseded by ASU 2014-09, so the Subtopic now simply directs preparers to Subtopic 340-40 for incremental costs of obtaining a contract with a customer and costs to fulfill a contract.
- 985Software7 ¶
ASC 705-985 is a "links only" subtopic that points to the authoritative guidance elsewhere in the Codification on cost of sales and services for computer software. Its content is that amortization of capitalized software development costs for products marketed to others is charged to cost of sales or a similar expense category (per 985-20-45-1), while duplication/packaging costs are inventory costs under 985-330 and costs to keep software current with hardware revisions are addressed in 985-20-55-11 through 55-12.