is the US GAAP revenue recognition standard, titled Revenue from Contracts with Customers, that explains when and how a company recognizes revenue from customer contracts by focusing on the transfer of promised goods or services and the consideration the company expects to receive.
Core principle and the five-step model
ASC 606 is applied using a five-step framework:
- Identify the contract with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations
- Recognize revenue when (or as) each performance obligation is satisfied ()
Key concepts ASC 606 emphasizes
ASC 606 often requires judgment about:
- Performance obligations (what is distinct and promised)
- Variable consideration (discounts, rebates, penalties, usage based fees)
- Timing of recognition (over time vs point in time)
- Contract modifications and principal vs agent decisions
- Licensing and other industry-specific patterns, where applicable
Disclosures, controls, and AI-assisted workflows
ASC 606 includes a broad disclosure objective to help financial statement users understand the nature, amount, timing, and uncertainty of revenue and cash flows from customer contracts. (BDO)
In modern finance teams, compliance is often supported by automation, such as:
- Contract data extraction (pricing, renewal, obligations) to support step 2 and step 4
- Rules-based revenue schedules inside ERP or revenue subledgers
- Control workflows that track approvals, changes, and audit evidence for repeatable application across many contracts
Frequently Asked Questions
Is ASC 606 the same as IFRS 15?
They are closely aligned standards built on a similar model, but they are issued under different accounting frameworks (US GAAP vs IFRS). (SEC)
What types of revenue does ASC 606 cover?
It generally covers revenue from contracts to provide goods or services to customers, unless another US GAAP topic applies. (EY)
What is a performance obligation under ASC 606?
A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to a customer. (EY)
When did ASC 606 become effective?
For public business entities, it was effective for annual reporting periods beginning after December 15, 2017 (commonly first applied in 2018 for calendar-year companies), with later effective dates for many nonpublic entities. (RSM US)
How did the SEC align its guidance with ASC 606?
The SEC issued Staff Accounting Bulletin (SAB) 116 to update SEC staff guidance to conform with ASC Topic 606. (SEC)
