Start with every explicit and implied promise, then decide which promises form performance obligations. Administrative setup that does not transfer a good or service is not an obligation merely because it costs money. A material customer option or service-type warranty may add a promise; an assurance warranty may instead fall under other guidance.
The obligation map drives allocation and recognition. Missing an obligation front-loads its consideration into the remaining items. Inventing one can defer revenue without a transferred benefit. A recurring service may qualify as one series obligation, but only after its distinct service periods and pattern are supported.
ASC 606-10-25-14 identifies the distinct-good-or-service, distinct-bundle, and series paths. Promises can arise from written terms or from practices and statements that create a reasonable customer expectation under 25-16. An internal setup activity is excluded when it does not transfer a good or service to the customer under 25-17.
Follow the Cedar promise-map example, then complete the independent Summit map.
Put the concept to work
Understand this concept
- Explain the relationship among contract promises, distinct goods or services, bundles, and the qualifying series guidance.
Apply this concept
- Classify contract promises as performance obligations when the distinctness facts are supplied.
Analyze this concept
- Build a complete performance-obligation map from explicit terms, customary practices, options, warranties, setup activities, and supplied integration facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Contract with a customer — Understand
To understand this concept: Required. Performance obligations are identified within an established accounting contract.
- Performance obligation — Apply
To analyze this concept: Required. The complete map extends supplied-fact classification to implicit promises, integration, options, warranties, and series guidance.
- Performance obligation — Understand
To apply this concept: Required. Classification applies the promise and distinctness boundaries to supplied facts.
Lessons
Worked examples and cases
- Allocate and reconcile Linden Peak's device-and-support contract
- Allocate Cedar Trail's contract by relative SSP
- Allocate Granite Harbor's cabinet-and-maintenance contract
Show 3 more examples and cases
Practice
- Assemble a controller-ready Topic 606 contract file
- Build a promise and obligation map
- Carry an advance from signing through machine delivery
Show 1 more practice items
Common mistaken ideas
Sources
Related concepts
Use this idea next
- Customer option and material right — Understand
Required level here: understand. Required. A material right is analyzed as a promised benefit in the contract.
- Distinct good or service — Understand
Required level here: understand. Required. Distinctness determines how promises become performance obligations.
- Performance obligation — Analyze
Required level here: apply. Required. The complete map extends supplied-fact classification to implicit promises, integration, options, warranties, and series guidance.
Show 5 more next steps
- Performance obligation — Apply
Required level here: understand. Required. Classification applies the promise and distinctness boundaries to supplied facts.
- Remaining performance obligation — Understand
Required level here: understand. Required. RPO represents consideration allocated to unsatisfied obligations.
- Standalone selling price — Understand
Required level here: understand. Required. An SSP is determined for each identified performance obligation.
- Transfer of control — Understand
Required level here: understand. Required. Control is assessed for the asset promised in each obligation.
- Warranty in a customer contract — Understand
Required level here: understand. Required. A service warranty can be a separate performance obligation.
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