A signed contract does not tell you when to record revenue or how much to record. You need to identify the customer, the enforceable promises, the price, and when control transfers. Then you must connect those decisions to receivables, contract balances, contract costs, entries, and disclosures.
Learn the revenue model before you practice it
Read these lessons in order. Each lesson teaches one part of the contract before the next lesson uses that conclusion. The worked examples later on this page demonstrate the method; they do not replace these lessons.
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Establish scope and the accounting contract
Decide whether ASC 606 applies and where the accounting contract begins and ends.
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Map promises before counting performance obligations
Find explicit and implied promises, then apply both parts of the distinct test.
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Estimate consideration, then constrain it
Build transaction price without confusing variability, concessions, or credit risk.
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Separate financing and other forms of consideration
Account for financing, noncash consideration, and amounts paid to a customer.
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Establish standalone prices and allocate the contract
Develop standalone-selling-price evidence and reconcile the allocation to the contract total.
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Recognize performance over time only after proving the path
Apply the over-time criteria before selecting and using a measure of progress.
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Locate point-in-time control and route special arrangements
Use control evidence and separate returns, warranties, consignment, and related arrangements.
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Classify modifications and principal-agent presentation
Choose a modification path and decide whether the company reports revenue gross or net.
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Reconcile contract balances, receivables, entries, and costs
Connect performance, billing, cash, revenue, contract balances, and ASC 340-40 costs.
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Build the revenue note and a reviewable evidence trail
Finish with disclosure, remaining performance obligations, judgments, and authority.
After the ten lessons, use the Linden Peak application to carry one contract through allocation, entries, balances, and disclosure. Use the Cedar examples only when you want another short demonstration of one decision.
Follow the contract through each accounting decision
ASC 606-10-05-4 summarizes five core steps. The lessons above develop those steps and the additional decisions needed for balances, costs, entries, and disclosure. Use this map to return to a decision after you have read its lesson.
Use the five-step revenue model
Choose a step to return to its explanation and related reading.
- Identify the contract Confirm that a contract with a customer exists.
- Identify the promises Identify each performance obligation.
- Determine the price Determine the transaction price.
- Allocate the price Allocate the price to the performance obligations.
- Recognize revenue Recognize revenue when or as control transfers.
Establish scope and the contract boundary
Identify the customer, enforceable rights, payment terms, commercial substance, and collectibility facts. Check scope exclusions, contract combination, and modification requirements before measuring revenue.
Read first: Establish scope and the accounting contract.
Worked example: See how Cedar applies the contract boundary.
Identify the promises and performance obligations
Inventory explicit and implied promises. A promised good or service is distinct only when the customer can benefit from it and the promise is separately identifiable in the contract's context.
Read first: Map promises before counting performance obligations.
Worked example: See how Cedar maps its promises.
Determine the transaction price
Estimate the consideration the company expects to receive for the promised transfer. Evaluate variable amounts, the constraint, significant financing, noncash consideration, and amounts payable to the customer when they are relevant.
Read first: Estimate consideration, then constrain it and Separate financing and other forms of consideration.
Use transaction price and variable consideration when either term needs closer study.
Allocate the price to performance obligations
Use relative standalone selling prices unless the guidance supports a specific allocation exception. Preserve the contract total and the basis for every estimate.
Read first: Establish standalone prices and allocate the contract.
Worked example: See Cedar's relative allocation.
Recognize revenue when or as control transfers
Test the over-time criteria first. If none applies, identify the point when the customer obtains control. For an over-time obligation, select a measure of progress that depicts performance and update it each period.
Read first: Recognize performance over time only after proving the path.
Worked example: See Harbor measure fabrication progress.
Present the contract balances
Compare performance with customer payment. Present a contract asset or contract liability from that relationship, and present an unconditional right to consideration separately as a receivable.
Read first: Reconcile contract balances, receivables, entries, and costs.
Account for qualifying contract costs
ASC 340-40 addresses incremental costs of obtaining a contract and selected fulfillment costs. Recognition requires more than calling a cost “related to revenue.” Amortization follows the transfer of the related goods or services, and the asset is subject to impairment.
Read first: Reconcile contract balances, receivables, entries, and costs.
Worked example: Follow Cedar's contract-cost schedule.
Reconcile entries, balances, and disclosure
Tie the transaction price and allocations to revenue recognized, ending receivables, contract assets, contract liabilities, contract-cost assets, and the revenue note.
Read first: Build the revenue note and a reviewable evidence trail.
Worked example: Review Cedar's revenue note.
The sequence tells you what to decide. Your research file must also show where the governing requirements begin and which related guidance you checked.
Start your research at the relevant ASC Section
| Accounting decision you are researching | ASC locations to read first |
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| Scope and contract criteria | ASC 606-10-15 and 606-10-25-1 through 25-13 |
| Promises and performance obligations | ASC 606-10-25-14 through 25-22 |
| Transaction price | ASC 606-10-32-2 through 32-27 |
| Allocation | ASC 606-10-32-28 through 32-41 |
| Transfer and revenue recognition | ASC 606-10-25-23 through 25-30 |
| Measures of progress | ASC 606-10-25-31 through 25-37 |
| Contract balances and receivables | ASC 606-10-45-1 through 45-5 |
| Contract costs | ASC 340-40-25 and 340-40-35 |
| Revenue disclosures | ASC 606-10-50 |
These locations are research starting points. Read scope, definitions, exceptions, implementation guidance, effective dates, and other referenced Topics before reaching a conclusion.
After you determine when revenue is recognized, compare the company's performance with the customer's payment. That comparison determines which contract balance the company presents.
Distinguish receivables, contract assets, and contract liabilities
Use a receivable for an unconditional right
Only the passage of time is required before payment is due.
Use a contract asset when another condition remains
The company transferred goods or services, but its right to consideration still depends on something other than time.
Use a contract liability when payment comes first
The customer paid, or payment became due, before the company transferred the related goods or services.
Read contract asset and contract liability, then challenge the mistaken idea that a receivable and contract asset are synonyms.
The original model may change when the parties amend the contract or when a promise includes a warranty or another party. Stop and classify the new facts before carrying forward the original answer.
Stop and reassess when the contract facts change
Classify a contract modification
Added rights and promises can form a separate contract, a prospective change, or a cumulative catch-up. The price change alone does not decide the treatment.
Separate assurance from a service
An assurance-type warranty and a separately purchased service can create different accounting. Contract wording and the nature of the promised service matter.
Decide whether the company is principal or agent
Determine whether the company controls the specified good or service before transfer. Cash collected does not by itself determine gross or net revenue.
One fact remains especially easy to overvalue: the date the customer pays. Cash affects the contract balances, but performance determines the timing of revenue.
Do not record revenue only because cash arrived
A customer pays $12,000 on December 1 for a service that begins January 1. Receipt of cash changes the company's assets, but the company has not yet transferred the promised service. The contract terms and performance determine revenue timing.
Use the worked example, then try the independent question.
You have now seen each decision separately. The next sequence asks you to keep the promises, amounts, entries, balances, costs, and disclosure connected across one contract.
Study one complete contract, then practice independently
Worked example
Follow Linden Peak from allocation through disclosure
Use one checked schedule to connect the transaction price, obligation revenue, entries, receivable, contract asset, and remaining performance obligation.
Optional practice
Transfer the method to a customer advance
Change the promises and payment timing, then explain why machine delivery leaves a contract liability for support.
Optional practice
Decide what happens to the contract costs
Separate a success-based commission from salary, then test amortization and impairment under ASC 340-40.
Optional practice
Build the contract-to-reporting research trail
Reproduce the paragraph path for promises, allocation, transfer, balances, costs, and disclosure.
Once you can apply the model to complete contract facts, use a public filing to inspect how a company reports the resulting policies, amounts, and judgments.
Use a filing to inspect reported results
Microsoft's 2025 Form 10-K separates revenue recognition policies, disaggregated revenue, unearned revenue, and remaining performance obligations. Those disclosures show how the company presents and explains its reported results. They do not disclose every contract term needed to decide each performance obligation or measure of progress from scratch.
Use the official Microsoft 2025 Form 10-K to find Notes 1, 11, and 12. The site's revenue chapter also routes readers to Microsoft, Accenture, and Adobe filing examples.
A filing gives you reported results, not every contract fact needed to rebuild the accounting. Use the constructed cases below to make the complete set of recognition and reporting decisions yourself.
Apply the model to a complete contract
Cumulative case
Complete the Linden Peak monitoring contract
Carry one constructed contract through the module's cumulative accounting and reporting work.
Transfer case
Transfer the model to Granite Harbor
Use different promises, prices, timing, and evidence.
Use the module page to track your place
The Revenue from Contracts with Customers module indexes the ten lessons you read above, their supporting material, and the cumulative case. The versioned ASC 606 source record states the paragraph set and review boundary used for its core recognition and contract-balance claims.
Check that the complete contract reconciles
You can now move from contract scope through promises, price, allocation, transfer, balances, contract costs, and disclosure. Return to Complete every accounting decision when one of those decisions starts to blur into another. Use the concept wiki for a focused definition or example, or return to Understanding the ASC to choose another course path.