Many small and medium-sized businesses use varying basis of accounting depending on their financial reporting requirements. For companies preparing their financial statements in accordance with Generally Accepted Accounting Principles (GAAP), recognizing revenue could become a more complex process with the Financial Accounting Standards Board (FASB) passing their Revenue from Contracts standard. The standard provided a much more specific model for recognizing revenue that what was used in the past. For non-public entities, this takes effect for annual periods beginning after December 15, 2017.
The five steps for recognizing revenue are summarized below:
- Identify the contract(s) with the customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations in the contract.
- Recognize Revenue when (or as) the entity satisfies a performance obligation.
For more guidance on this topic and if/how it applies to your business, please contact Tony Mueller, CPA at firstname.lastname@example.org or 314-576-1350.