Multiple Choice
Gain contingencies usually are recognized in the income statement when:
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
What is the first step in the process for revenue recognition according to the five-step model under ASC 606?
A
Identify the contract with a customer
B
Determine the transaction price
C
Allocate the transaction price to the performance obligations
D
Recognize revenue when (or as) the performance obligation is satisfied
Verified step by step guidance1
Understand that ASC 606 outlines a five-step model for revenue recognition, which is designed to ensure consistent and transparent reporting of revenue.
The first step in the model is to identify the contract with a customer. A contract is an agreement between two or more parties that creates enforceable rights and obligations.
To identify the contract, ensure that the agreement meets the following criteria: (1) the parties have approved the contract, (2) the rights and obligations of each party are identifiable, (3) payment terms are clear, (4) the contract has commercial substance, and (5) it is probable that the entity will collect the consideration to which it is entitled.
Once the contract is identified, the subsequent steps in the model involve determining the transaction price, allocating the price to performance obligations, and recognizing revenue as obligations are satisfied.
Focus on understanding the importance of this first step, as it sets the foundation for the entire revenue recognition process under ASC 606.
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