Define ASC 606 and steps to recognize revenue and advantages

Question

Accepted Answer

ASC 606 is a revenue recognition standard that outlines principles for recognizing revenue from contracts with customers.

ASC 606 stands for Accounting Standards Codification 606
Steps to recognize revenue under ASC 606 include identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when each performance obligation is satisfied
Advantages of ASC 606 include providing a more consistent framework for revenue recognition, improving comparability between companies, and enhancing financial statement disclosures
Example: A software company that sells annual subscriptions would need to recognize revenue over the term of the subscription rather than all at once

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