Collectibility
Collectibility is the assessment of whether it is probable that an entity will collect the consideration it is entitled to. Under ASC 606, it is a criterion for a contract to exist; under ASC 842, it affects lessor classification and income.
Revenue Recognition
Explanation
ASC 606: a contract exists only if it is probable that the entity will collect substantially all of the consideration for the goods or services that will be transferred. The assessment considers the customer's ability and intention to pay when amounts are due. Under US GAAP, "probable" means likely to occur; IFRS 15 uses "more likely than not." If the criterion is not met, consideration received is generally recognized as a liability until specific events occur, for example the contract is terminated and the consideration is nonrefundable. An expected shortfall that reflects an implicit price concession reduces the transaction price; it is not a collectibility issue.
ASC 842 (lessors):
• Sales-type lease: if collectibility is not probable, the asset is not derecognized and payments received are a deposit liability.
• Direct financing lease: requires probable collectibility; otherwise the lease is an operating lease.
• Operating lease: if collectibility is not probable, lease income is limited to the lesser of straight-line income and payments collected.
IFRS 16 has no equivalent collectibility criterion for lessors.
Why It Matters
Collectibility decides whether revenue or selling profit can be recognized at all. In SAP RAR, these exceptions need explicit handling, not manual corrections at close.
Related Terms
Five-Step Model · ASC 606 · Transaction Price · ASC 326 · Sales-Type Lease · ASC 842
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