The second step of the new revenue recognition standard is to identify the performance obligation in the contract. In this step, an entity will evaluate the goods and services offered and determine which are distinct and should be accounted for as separate performance obligations. The key determinant for identifying a separate performance obligation is whether the good or service is distinct.
A good or service is distinct if both of the following criteria are met:
Each distinct good or service is separately identified from other promises in the contract and represents a separate performance obligation.
Stay tuned for our next post, which will cover transaction pricing.
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