Accounting technology / Glossary / ASC 606

What is ASC 606?

Definition

ASC 606, Revenue from Contracts with Customers, is the US GAAP standard that sets when and how much revenue a company records. Issued by the FASB with the IASB in 2014, it replaced most industry-specific revenue rules with one five-step model, based on transferring control of goods or services to the customer.

Also calledTopic 606Revenue from Contracts with Customers

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Issued by: FASB, May 2014
Public companies: Periods after 15 December 2017
IFRS equivalent: IFRS 15

How ASC 606 works

Public companies applied ASC 606 from annual periods beginning after 15 December 2017; private companies followed a year or two later, after a deferral. The five steps are identifying the contract, identifying performance obligations, determining the transaction price, allocating it by standalone selling price and recognising revenue as each obligation is satisfied. The main judgements are which promises are distinct, how to estimate variable consideration such as usage fees, rebates and discounts, and whether revenue is earned over time or at a point in time. A related topic, ASC 340-40, requires the incremental costs of obtaining a contract, such as sales commissions, to be capitalised and spread over the period of benefit. For SaaS and software companies, ASC 606 drives deferred revenue schedules, multi-element allocations and detailed disclosures of remaining performance obligations.

Common questions

When did ASC 606 take effect?+

For public business entities, for annual periods beginning after 15 December 2017, so calendar year 2018. Private companies applied it later, mostly for annual periods beginning after 15 December 2018 or 2019.

What is the difference between ASC 606 and IFRS 15?+

The two standards share the same core principle and five steps. Differences include some practical expedients, collectibility thresholds, disclosures for private companies and how licences of intellectual property are treated in some cases.

Does ASC 606 apply to sales commissions?+

Commissions are covered by the related topic ASC 340-40, which requires the incremental costs of obtaining a contract to be capitalised and amortised over the period of benefit, with a one-year practical expedient.