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Explain 5 Step Process For Revenue Recognition Under Asc 606

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5 step process for revenue recognition under ASC 606 OVERVIEW OF ASC 606 [1] [2] [4]  Revenue recognition is an important standard used in many financial ratios to examine and compare companies. The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) recognized that existing revenue recognition literature varied between their jurisdictions and that both frameworks needed upgrades. The two organizations worked together and Accounting Standards Update (ASU) 2014-09 is the aftereffect of their joint efforts. This update will be part of the Accounting Standards Codification (ASC) as Topic 606: which will replaces the existing revenue recognition literature in Topic 605. [1]  Why is the FASB doing this? …show more content…

Some entities will be needed to make more estimates, for instance, for transactions with variable consideration. In addition, the increase in estimates and judgments is accompanied by an increase in disclosures to describe the estimation methods, inputs, and assumptions. It is required that all entities will need to update their accounting policies, procedures, and internal controls to conform to the new revenue recognition model. SCOPE [2] The new standards apply to contracts with customers to provide goods or services in all in the ordinary course of business. This can also include the sale of non-financial assets such as fixed assets and intangible assets that are not part of a company’s ordinary course of business. Specifically excluded in ASC 606-10-15-2 from this new guidance are

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