Revenue follows satisfaction of a performance obligation through control transfer. Control means the customer can direct an asset's use, obtain substantially all of its remaining benefits, and prevent others from doing so. Those benefits can arise through use, sale, exchange, pledge, holding, or lower costs. Read ASC 606-10-25-23 through 25-26 for the transfer principle, decision order, and definition.
Follow the required order
Assess each performance obligation at contract inception. First test whether it is satisfied over time. If no over-time criterion is met, locate the point in time when control passes. This order prevents a convenient delivery date from replacing the required analysis.
Build evidence around the promised asset
For point-in-time transfer, consider payment entitlement, ownership documents, custody, exposure to gains or losses, and the customer's acceptance rights. No indicator is a universal rule. Retained title may secure payment while the customer controls the asset. A consignee may possess goods the seller still controls. A seller may hold goods already controlled by the customer. A repurchase right may prevent transfer despite delivery.
ASC 606-10-25-30 states the indicators and links them to special arrangements. Record the specified asset, dated rights, operating facts, contrary evidence, and open conditions. The control memo determines whether and when an obligation is satisfied. It does not establish transaction price, allocation, collectibility, or a return estimate.
Put the concept to work
Understand this concept
- Explain control as the customer's ability to direct use and obtain remaining benefits, distinct from invoice, title, possession, risk, acceptance, or cash considered alone.
Analyze this concept
- Analyze control using contractual rights, possession, title, risks and rewards, customer acceptance, substitution, and seller performance evidence.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Performance obligation — Understand
To understand this concept: Required. Control is assessed for the asset promised in each obligation.
- Transfer of control — Understand
To analyze this concept: Required. The fact pattern applies the control principle and indicators.
Lessons
Worked examples and cases
- Granite Harbor's cabinet-system customer contract
- Measure Harbor's fabrication progress
- Rebuild Linden Peak's monitoring-contract file
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Practice
Common mistaken ideas
Sources
Related concepts
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Use this idea next
- Principal-versus-agent revenue presentation — Understand
Required level here: understand. Required. Principal status turns on control before transfer.
- Revenue recognized at a point in time — Analyze
Required level here: analyze. Required. The date depends on the complete control evidence.
- Revenue recognized over time — Understand
Required level here: understand. Required. Over-time criteria describe control transfer as performance occurs.
Show 3 more next steps
- Sale-leaseback — Evaluate
Required level here: analyze. Required. The transfer must satisfy the applicable sale-control requirements before sale accounting.
- Special revenue arrangement — Understand
Required level here: understand. Required. Each arrangement modifies the evidence about what controls and when.
- Transfer of control — Analyze
Required level here: understand. Required. The fact pattern applies the control principle and indicators.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.
- ACC 300: Apply the revenue model Use now