Legal-document count and accounting-contract count need not match. A purchase order and side letter negotiated as one package can belong to one accounting contract. Conversely, contracts signed near each other are not automatically combined. Retain the negotiation chronology, customer relationship, price linkage, and promise map so the conclusion can be re-performed.
Combination happens before performance obligations and allocation are determined. Combining too late can hide a discount or variable amount; combining without evidence can allocate one customer's economics across an unrelated arrangement.
Contracts entered into at or near the same time can require combination under ASC 606-10-25-9. They must involve the same customer or its related parties. The contracts may share one commercial objective, one contract's price or performance may affect the other's consideration, or promises across the documents may form one performance obligation. One supported criterion is enough; a reviewer does not need to prove all three.
Apply that rule in the Cedar contract-boundary example before completing the independent Summit memo.
Put the concept to work
Understand this concept
- Explain why related negotiations, interdependent consideration, or one combined performance obligation can require multiple legal documents to be accounted for together.
Analyze this concept
- Determine the accounting contract boundary from timing, counterparties, negotiation objective, price dependence, and promised-goods evidence.
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Build on these ideas
- Contract combination — Understand
To analyze this concept: Required. Application depends on the purpose and indicators of combination.
- Contract with a customer — Understand
To understand this concept: Required. Only after identifying candidate contracts can the accounting unit be tested.
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Use this idea next
- Contract combination — Analyze
Required level here: understand. Required. Application depends on the purpose and indicators of combination.
Used in these readings
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- ACC 300: Apply the revenue model Use now