Definition

ASC 606 is the new revenue recognition standard for all businesses that enter into contracts with customers for the transfer of goods or services—public, private, and non-profit entities. Both private and public companies must ensure ASC 606 compliance. This standard is a joint effort of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). It lays out a framework for more consistent revenue recognition such that there are minimal variations adopted by businesses across industries while accounting for similar transactions.

Example

To follow the guidelines of ASC 606, companies must:a. Identify the contract with a customerb. Identify performance obligations as per the contractc. Determine transaction priced. Allocate transaction pricee. Recognize revenue and & when the entity satisfies the performance obligation

Why it matters

Due to the lack of standardization in financial reporting, it was difficult for investors and other consumers of financial statements to compare results across industries or compare companies within the same industry. ASC 606 improves standardization across methods followed by companies for revenue recognition. This will allow different companies to be compared to each other, especially B2B SaaS companies whose entire business is derived from contract-based revenue agreements with customers, both for-profit and non-profit customers.

Get Started

Ready to see Vareto in action?

Give your finance team the tools they deserve so your company can make better, faster operational decisions.

Request a demo