ASC 606
ASC 606 Revenue from Contracts with Customers is the US GAAP standard for revenue recognition. It was introduced by the Financial Accounting Standards Board (FASB) through ASU 2014-09 in May 2014. Public business entities generally applied it from 2018; other entities followed later.
Revenue Recognition
Explanation
ASC 606 replaced a large number of industry-specific revenue rules under US GAAP with one principles-based model. Like IFRS 15, it requires companies to recognize revenue when control of goods or services transfers to the customer, in the amount the company expects to be entitled to.
The standard follows the same five-step model as IFRS 15. Differences remain in some areas, for example the collectibility threshold, licenses of intellectual property, policy elections for shipping and handling and sales taxes, and the reversal of impairment losses on contract costs.
Related US GAAP guidance includes ASC 340-40 for the costs of obtaining and fulfilling contracts.
Why It Matters
For companies with US reporting obligations – or groups reporting under both US GAAP and IFRS – ASC 606 determines revenue timing and disclosures. In SAP, both frameworks can be processed in parallel accounting principles within SAP Revenue Accounting and Reporting (RAR).
Related Terms
IFRS 15 · Five-Step Model · Remaining Performance Obligation (RPO) · Practical Expedient
Related Articles
• The 5-Step Model of IFRS 15 / ASC 606 Explained for SAP Teams
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