Revenue Recognition
The standard for recognizing revenue when control of goods or services transfers to the customer.
FAR rarely asks you to list the five steps; it hands you a contract and makes you recognize the right amount in the right period. The classic tell is bundled deliverables, so the answer hinges on Step 2 (distinct performance obligations) and Step 4 (allocate by relative standalone selling price) — a $1,000 package with an undelivered service means part of the cash is deferred as a contract liability, not revenue. Watch variable consideration: estimate it (expected value or most-likely-amount), then apply the constraint so you only book amounts where it is highly probable no significant reversal occurs (under US GAAP). Point-in-time vs. over-time turns on control — recognize over time only if one of the three over-time criteria is met.
The trap is gross vs. net (principal vs. agent): an agent reports only its commission, decided by who controls the good before transfer. Don’t reduce this to accrual basis or GAAP generally — ASC 606’s trigger is transfer of control, not “earned and realizable” (the older Concepts-Statement language some banks still echo). Memory hook: ISPAR — Identify, Separate, Price, Allocate, Recognize.
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