Transaction Price
The transaction price is the amount of consideration a company expects to be entitled to in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties, such as certain sales taxes.
Revenue Recognition
Explanation
Determining the transaction price is step three of the five-step model. It is not always the contractual or invoiced amount. The following elements must be considered:
• Variable consideration – discounts, rebates, refunds, bonuses, penalties, or usage-based fees, subject to a constraint.
• Significant financing component – when payment timing provides a significant financing benefit to the customer or the company.
• Non-cash consideration – goods, services, or other non-cash items received from the customer.
• Consideration payable to a customer – payments, credits, or equity instruments granted to the customer, which generally reduce the transaction price.
The transaction price is then allocated to performance obligations based on relative standalone selling prices.
Why It Matters
Errors in the transaction price affect every performance obligation in the contract. In SAP, pricing conditions from SAP SD or SAP BRIM are the starting point, but additional logic may be needed for rebates, financing components, or expected returns before the price is allocated in SAP Revenue Accounting and Reporting (RAR).
Related Terms
Five-Step Model · Variable Consideration · Significant Financing Component · Allocation · Standalone Selling Price · Practical Expedient · Rebate · Remaining Performance Obligation (RPO) · Collectibility
Related Articles
• The 5-Step Model of IFRS 15 / ASC 606 Explained for SAP Teams
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