FAR revenue recognition: what to recognize, when, and how much

The rules, one page each

1. ASC 606 contract modifications: separate contract or prospective blend?Decision tree

   A modification is a separate contract if it adds distinct goods or services and the price increase reflects their standalone selling prices. Otherwise, account for it prospectively if remaining goods or services are distinct; if not, it is part of the existing contract with a cumulative catch‑up.

2. ASC 606: Over Time vs. Point-in-Time Revenue RecognitionDecision tree

   One over-time criterion is enough: simultaneous receipt and consumption, customer control during creation or enhancement, or no alternative use plus an enforceable right to payment for performance completed to date. If none applies, recognize when control transfers.

3. ASC 606: When Are Performance Obligations Distinct?Step by step

   A promised good or service is distinct if the customer can benefit from it on its own or with readily available resources, and it is separately identifiable within the contract. Both tests must pass.

4. ASC 606 Relative Standalone Selling Price Allocation ExampleWorked example

   Allocate transaction price by relative standalone selling prices unless an allocation exception applies. Include only unconstrained variable consideration, and recognize each obligation's allocated revenue when or as it is satisfied.

5. ASC 606 Right of Return: Revenue and Refund LiabilityWorked example

   When expected returns can be estimated, revenue excludes total expected refunds; the refund liability covers only refunds still owed. Record an asset for the right to recover products and reduce cost of goods sold.

6. Upfront fees, activation, and stand‑ready obligations (memberships, cloud, telecom)Worked example

   Nonrefundable upfront or activation fees are included in the transaction price and recognized over the period of the related service unless they transfer a distinct good or service. Stand‑ready obligations are recognized evenly or by a measure that reflects the promised readiness pattern.

7. Control transfer pitfalls: bill‑and‑hold, consignment, principal vs agent, repurchaseSort it

   Recognize revenue only when the customer obtains control. For bill‑and‑hold, all ASC 606 criteria must be met. Consignments are not sales to the intermediary. Agents recognize a fee, not gross revenue. Certain repurchase arrangements preclude a sale and may be treated as leases or financing.