Worked-example setupScope and assumptions
- Qualifying performance is complete and the customer payment right is unconditional, subject to the stated settlement discount.
- The most-likely-amount method is appropriate. Current evidence supports the full discount at inception and satisfies the variable-consideration constraint.
- Taxes, financing, credit-loss effects, other price changes, and other movements in these accounts are excluded.
- Period
- March sale and price update, followed by April collection
- Units
- US dollars
- Rounding
- Whole US dollars; no rounding required
On March 15, fictional Rowan Services finishes work under a customer contract and bills $5,000. Its payment term makes $4,900 due through March 25 and $5,000 due on April 14.
Rowan's supported initial price estimate is $4,900: $5,000 multiplied by 0.98. The net-settlement formula checks that amount. No payment arrives by the discount deadline.
At the March 31 reporting date, the discount is no longer available. Current evidence supports the full $5,000 transaction price, the service is complete, and no credit-loss effects are included in this exercise. The customer pays $5,000 on April 14.
The price update precedes collection. Under ASC 606-10-32-14, the estimate is updated at the reporting date. Under 32-43, the supported change allocated to completed performance affects revenue in that period. Waiting for April's cash would put that change in the wrong period.
Expiry does not prove that the customer will pay. If the facts instead indicate credit deterioration, investigate the allowance separately from the price. The example's exclusions are not a conclusion about every late-paying customer. Compare early settlement, then try the independent practice.
Verified calculation · journal entry
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- accounts
- 3 fields
Inspect data
{
"cash": {
"classification": "asset",
"opening": 0
},
"receivable": {
"classification": "asset",
"opening": 0
},
"revenue": {
"classification": "revenue",
"opening": 0
}
}- entries
- 3 items
Inspect data
[
{
"label": "March 15 completed service",
"lines": [
{
"account": "receivable",
"credit": null,
"debit": 4900
},
{
"account": "revenue",
"credit": 4900,
"debit": null
}
]
},
{
"label": "March 31 price update",
"lines": [
{
"account": "receivable",
"credit": null,
"debit": 100
},
{
"account": "revenue",
"credit": 100,
"debit": null
}
]
},
{
"label": "April 14 collection",
"lines": [
{
"account": "cash",
"credit": null,
"debit": 5000
},
{
"account": "receivable",
"credit": 5000,
"debit": null
}
]
}
]Recomputed result
| Measure | Value |
|---|---|
| cash | 5,000 |
| ending credit balances | 5,000 |
| ending debit balances | 5,000 |
| receivable | 0 |
| revenue | 5,000 |