Revenue Recognition
Posted on: March 16, 2018 | By: Andy Vitullo | QAD Financials
Revenue Recognition
In 2014, the Financial Accounting Standards Board (FASB) issued guidance on recognizing revenue in contracts with customers. The FASB version of the new standard is known as ASC 606:
The standard focuses on the following concepts:
· Remove inconsistencies and weaknesses in existing revenue requirements.
· Provide a more robust framework for addressing revenue issues.
· Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.
· Provide more useful information to users of financial statements through improved disclosure requirements.
· Simplify the preparation of financial statements by reducing the number of requirements to which an organization must refer.
The revenue recognition standard contains several core principles.
· Contracts are segmented into performance obligations and revenue allocated to each obligation.
· Revenue is recognized when control of the goods or services in each performance obligation is transferred to the customer. For example, a manufacturing company is not paid for its goods until the goods are accepted and implementation services are complete.
· Revenue is measured net of customer incentives. For example, the invoice price is higher than the actual price paid because the customer benefits from bulk discounts.
· Estimates and judgments are involved in recognizing and measuring revenue.
· More extensive disclosures are required in financial statements, even if there is no change to the numbers.
Version 2017 of QAD Enterprise Applications has developed a Revenue Recognition module to support the ever-changing landscape of accounting requirements.