The Five-Step Model Overview

Concept

Why ASC 606 Matters

ASC 606 is THE revenue recognition standard. It replaced dozens of industry-specific rules with one unified framework. Every company that earns revenue from contracts with customers must follow these five steps.

Key Point

The Five Steps

Step 1: Identify the contract with a customer. Step 2: Identify the performance obligations. Step 3: Determine the transaction price. Step 4: Allocate the transaction price. Step 5: Recognize revenue when obligations are satisfied.

Example

Simple Example

A software company sells a license ($7,000) bundled with support ($3,000) for $9,000. Two obligations: license recognized at delivery, support recognized over 12 months. Allocation uses relative standalone prices.

Performance Obligations & Transaction Price

Ready to test your knowledge?

Practice questions from this module to reinforce what you learned.

Practice Questions