Establish scope and the accounting contract

Linden Peak receives a signed purchase order and 20 percent deposit on December 20. The customer can cancel without compensation until its procurement board approves the project on January 8. The controller's draft records December revenue because “we have a contract and cash.” The legal document and cash are real; the accounting contract date is still open.

Run scope before the five steps

Identify the promised exchange and ask whether another Topic governs it. A lease, insurance arrangement, financial instrument, guarantee, or qualifying nonmonetary exchange does not enter Topic 606 merely because a counterparty pays cash. Then establish whether the counterparty obtains outputs of Linden Peak's ordinary activities as a customer rather than collaborating in a shared-risk development activity.

For a candidate customer contract, retain evidence for:

• approval and commitment of the parties;
• each party's enforceable rights and payment terms;
• commercial substance;
• probability of collecting the amount to which Linden Peak expects to be entitled, considering ability and intention; and
• termination rights and what remains enforceable if either party exits.

Collectibility here is not the later allowance calculation. It is one threshold for applying the revenue model to the promised consideration. If the threshold is met and an unconditional receivable later deteriorates, Topic 326 takes over that credit-loss question.

Preserve the failed-criteria path

If the criteria are not met, do not discard the arrangement. Record cash under the applicable liability or other model and monitor what would support later recognition, criteria becoming satisfied, complete performance with substantially all consideration received and nonrefundable, or termination with nonrefundable consideration under the applicable rule. State the exact branch rather than writing “defer until later.”

In Linden Peak's file, the cancellation right and procurement approval control the starting date. The December deposit is not proof of noncancellable rights. The January approval may establish the contract if the other criteria are met; the supplied facts do not authorize a December performance conclusion.

Decide whether documents form one contract

On January 8, the parties sign the device order. On January 9, they sign a side letter reducing the three-year support price if the device order proceeds. Test combination because the documents were negotiated together, the consideration is interdependent, and the promises may form one commercial package. Contract numbers and signature dates do not decide the unit.

Create a contract-boundary sheet with columns for document, party, execution date, approval, termination, promised rights, payment rights, negotiation objective, price linkage, scope conclusion, evidence owner, and open fact. Only after that sheet identifies the accounting contract should the obligation map begin.

Boundary memo

Follow the Cedar contract-boundary example. Then prepare the independent Summit memo. For each date, identify the controlling facts, conclusion, cash treatment, and event that changes the analysis. Decide combination before mapping promises.