What does performance obligation mean on the CPA exam?
Performance obligation. A promise in a contract to transfer a distinct good or service. Revenue is recognized as each one is satisfied, not when the contract is signed or the cash arrives.
Defined against ASC 606-10-25-14.
Which CPA exam sections use performance obligation?
Performance obligation appears in the FAR section of the CPA exam.
Other terms defined against ASC 606-10
- contract asset: The right to consideration for goods or services already transferred, where the right still depends on something other than the passage of time.
- contract liability: The obligation to transfer goods or services for which the customer has already paid, or for which payment is unconditionally due.
- revenue recognition: Deciding when a sale becomes revenue.
- transaction price: The consideration an entity expects to be entitled to for transferring goods or services, excluding amounts collected for third parties such as sales tax.
- variable consideration: Any part of a contract price that is not fixed, such as a bonus, a discount or a refund.
Related terms
- asset retirement obligation: A legal obligation associated with the retirement of a tangible long-lived asset, recognized at fair value in the period incurred, with an equal asset retirement cost capitalized into the asset.
- consideration: The bargained-for exchange that makes a promise enforceable.
- user auditor: The auditor of an entity that uses a service organization.
- cost of goods sold: What the items actually sold cost to make or buy.
- boot: Anything received in an otherwise tax-free exchange that is not the qualifying property, typically cash or debt relief.
- cash basis: Recognizing revenue when cash is received and expense when cash is paid.