Roseville, CA CPA Revenue Recognition (ASC 606) Accounting Services
Our Roseville revenue recognition accounts and CPAs at Cook CPA Group can help you navigate ASC 606 with our accounting services. Call today.
Since 2014, the Accounting Standards Codification (ASC) has included Topic 606, which has been regarded as the accounting standard for revenue recognition in the United States. Known as ASC 606, it aims to keep business revenue requirements consistent, provide a robust framework for addressing issues around revenue reporting, and generally improve revenue reporting practices. It is an integral part of accrual accounting for businesses and plays a major role in the financial health of businesses.
Businesses that need assistance with their revenue recognition reporting should seek the assistance of a revenue recognition accountant. The Roseville revenue recognition accountants from Cook CPA Group can help businesses of all sizes and industries with their ASC 606 revenue reporting process.
Understanding ASC 606 Accounting Standards
The revenue recognition standards—more commonly known as ASC 606—were put into place in 2014 by the Financial Accounting Standards Board (FASB) and the IASB (International Accounting Standards Board) as an effort to improve the methods of financial reporting. While ASC 606 accounting standards were adopted in 2014, they did not go into effect for business until 2017. Public businesses were expected to comply with ASC 606 accounting standards after December 15, 2017 while non-public companies were expected to comply with ASC 606 beginning on December 15, 2018.
ASC 606 accounting standards are, essentially, a framework that is intended to allow businesses to monitor their revenue from consumer contracts in a way that is consistent and easily managed. The ASC 606 accounting standards are based on the principle that companies have to recognize revenue of goods and services in an amount that is proportionate to what is delivered to the customer.
ASC 606 accounting standards are meant to keep consistency across industries that differ in their methods of handling various types of transactions. Since the revenue that a business will need to recognize varies in structure and frequency—including not just sales but also subscriptions, termination feeds, warranties, shipping, and much more—ASC 606 accounting standards provide a way for all these various types of revenue to be considered on an even playing field.
While ASC 606 accounting standards are likely to have an effect on all businesses, they are more likely to have a substantial impact on businesses that sell recurring services such as subscriptions and licenses. Deciding whether or not certain subscription characteristics will be recognized as revenue as soon as the transaction is made or deferred to be accounted as revenue at a later point are major decisions that businesses need to make with the help of a revenue recognition accountant.
How ASC 606 Can Affect Your Business
While ASC 606 revenue recognition are accounting standards that are relevant to the domain of accounting, they can have impacts that reach into areas of a business. ASC 606 accounting standards may impact a business’s financial resources, for example, by requiring less of a need for a business to understand accounting in their own industry, and instead require more of a need to have a deep understanding of what is involved with ASC 606 accounting standards. ASC 606 accounting standards also make calculations around revenue recognition more complicated, meaning that more resources may be required to complete them.
ASC 606 accounting standards can also impact the way that sales are completed. Since ASC 606 requires businesses to report almost all aspects of their sales, adding in extended warranties and waived fees may slow down revenue reporting and make salespeople less likely to include them; ASC 606 may also change the way that salespeople are incentivized to make sales.
Accounting standards outlined in ASC 606 may also impact a business’s legal department in that ASC 606 causes risk to be distributed differently. With the implementation of ASC 606, legal terms can have an impact on the value of a deal if they affect performance obligations. Every distinct obligation is considered with revenue recognition under ASC 606 accounting standards, which means that the business’s legal team will have to be involved throughout the entirety of the sales process.
The Steps in the ASC 606 Revenue Reporting Process
Businesses can generally adhere to the following steps when complying with the ASC 606 accounting standards:
- Identify contract with the customer – During this step, the criteria that will be met when a contract is established with a customer will be outlined.
- Identify contract performance obligations – During this step, methods for handling distinct performance obligations are described.
- Determine the price of the transaction – During this step, what should be considered while establishing the price of transactions (the amount that the business expects from the transfer of good or services to a customer) will be outlined.
- Allocate the price of the transaction – During this step, guidelines for the allocation of transaction prices across performance obligations are outlined.
- Recognize revenue – During this step, what should happen when the business meets and satisfies performance obligations is outlined.
Roseville Accountant for Revenue Recognition (ASC 606)
The experienced accountants that work with Cook CPA Group can help businesses complete accurate and thorough revenue reporting. Get in touch today to take the first step towards financial health.