Revenue Recognition

Revenue recognition is the accounting principle that determines when revenue is counted on the income statement, governed in the United States by ASC 606. ASC 606 is the FASB standard effective 2018 that unified revenue recognition across industries, with specific rules for SaaS subscriptions, multi-element contracts, service-and-product bundles, and milestone-based deals. The core principle: revenue is recognized when (or as) the company satisfies its performance obligation to the customer, not when cash is collected or the contract is signed.

The five-step ASC 606 model:

1. Identify the contract with the customer.
2. Identify the performance obligations in the contract (distinct goods or services).
3. Determine the transaction...