The Financial Accounting Standards Board (FASB) released a new accounting standard on May 28, 2014 (ASU) 2014-09, Revenue from Contracts with Customers. FASB has been working jointly with the International Accounting Standards Board (ASB) since 2008 to develop a single principles-based model for recognizing revenue. The standard applies to both public and nonpublic companies for reporting periods beginning on or after December 15, 2017. It may require companies to change their accounting and will also require new disclosures.
There are 5 steps to the Revenue Recognition Model:
- Identify the Contract with a Customer.
- Identify the Performance Obligations in the Contract.
- Determine the Transaction Price.
- Allocate the Transaction Price to the Performance Obligations in the Contract.
- Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation.