ASC 606 Revenue from Contracts with Customers is a standard established by the Financial Accounting Standards Board (FASB) to outline how entities should report their revenue from contracts with customers. This standard is applicable to all entities and applies to all contracts with customers, including those that are written, oral, and as implied.
PricewaterhouseCoopers (PwC) has been actively involved in providing guidance and interpretation on ASC 606. In this article, we will explore ASC 606 and PwC`s perspective on it.
ASC 606 establishes a five-step process for recognizing revenue from contracts with customers. The key steps involved in this process are identifying the contract, identifying performance obligations, determining transaction price, allocating transaction price, and recognizing revenue. The standard requires entities to recognize revenue when they transfer control of goods or services to customers.
PwC`s interpretation of ASC 606 is aimed at helping entities to apply the standard effectively. According to PwC, entities should start by identifying the contract with the customer. A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations.
Once the contract is identified, the entity should identify the performance obligations. Performance obligations are promises to transfer goods or services to customers. These obligations should be distinct, meaning they are separately identifiable from other promises in the contract, and can be delivered separately or as part of a series of goods or services.
The next step is determining the transaction price. The transaction price is the amount of consideration that an entity expects to be entitled to in exchange for transferring the promised goods or services to a customer.
Allocation of the transaction price is the next step in the process. This step involves allocating the transaction price to each performance obligation identified in the contract based on its relative standalone selling price.
Finally, entities should recognize revenue when they transfer control of goods or services to customers. Control is defined as the right to direct the use and obtain the benefits from the goods or services.
In conclusion, ASC 606 is a vital standard that helps entities to recognize revenue from contracts with customers effectively. PwC`s interpretation of ASC 606 provides valuable guidance on how entities can apply the standard effectively. With a thorough understanding of ASC 606 and PwC`s perspective, entities can ensure that they comply with the standard and accurately report their revenue from contracts with customers.