ASC 606: Revenue from Contracts with Customers is the new revenue standard, developed jointly by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (ISAB), that affects all businesses entering into contracts with customers for the transfer of goods or services. This pertains to public, private, and non-profit entities. Public companies should already be compliant, based on the 2018 deadline. The deadline for non-public companies to become compliant was December 31, 2019.
The ASC 606 and IFRS 15 accounting standards were developed to achieve international alignment on how companies recognize revenue from contracts and customers. The overall purpose of this rule is to eliminate variations in the way businesses across multiple industries manage accounting over similar transactions.
Meeting the new compliance standards can take time, but it’s well worth the effort. Aside from the legal responsibility, ASC 606 compliance will help better organize your business’s revenue management, providing an opportunity for improvement and growth.
How to Stay Compliant with ASC 606
- Identify the Contract(s) with the Customer: An agreement between two or more parties creates enforceable rights and obligations.
- Identify the Performance Obligations in the Contract: Identify all distinct promises to transfer goods or services in the arrangement.
- Determine the Transaction Price: The amount of money the business expects to receive in return for transferring the goods or services.
- Allocate the Transaction Price: With more than one performance obligation, the seller must provide an accurate estimation for the obligation's standalone selling price vs. the total agreed upon amount.
- Recognize Revenue: The seller recognizes revenue as or when performance obligations are satisfied.
Get Compliant with NetSuite Advanced Revenue Management
- Integration: NetSuite ARM seamlessly integrates with existing ERP applications, including Oracle Financials, SAP R/3, and NetSuite Financials.
- Automation: Automate revenue forecasting, allocation, recognition, reclassification, and auditing through the rule-based framework.
- Flexibility: Revenue recognition schedules for all sales transactions, one-off and recurring billing processes, and multi-currency intelligence.