ASC 606: Revenue Recognition

Revenue isn’t recognized when cash is received. It’s recognized when the activities that earned the cash have been performed. Every dollar received must be matched to the promised good or service that earned it. Until that promise is fulfilled, the dollar belongs on the balance sheet. Once it is fulfilled, it belongs on the income statement.

Applying that principle requires judgment. Different industries and business models earn revenue in different ways, so the accounting may look different even when the underlying principle remains the same.

At this point, you understand the economic substance that ASC 606 is trying to capture. Everything that follows is simply the framework used to apply that principle in practice.