What does revenue recognition mean on the CPA exam?
Revenue recognition. Deciding when a sale becomes revenue. Under ASC 606 it is when control of the good or service transfers, which is not necessarily when cash arrives or the invoice is sent.
Defined against ASC 606-10-25.
Which CPA exam sections use revenue recognition?
Revenue recognition appears in 6 CPA exam sections: AUD, BAR, FAR, ISC, REG, TCP.
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.
- performance obligation: A promise in a contract to transfer a distinct good or service.
- 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
- significant risk: A risk of material misstatement that warrants special audit attention because of its likelihood or its size.
- direct financing lease: A lessor lease where control transfers only because a third-party guarantee makes collection probable.
- sales-type lease: A lessor lease that transfers control of the asset, so the lessor derecognizes it and records selling profit at commencement.
- reasonable possibility: More than remote.
- cash basis: Recognizing revenue when cash is received and expense when cash is paid.