Definition

Revenue recognition (ASC 606)

ASC 606 is the US GAAP standard that governs when and how a company records revenue from contracts with customers. It replaced a patchwork of industry-specific rules with a single five-step model: identify the contract, pin down the performance obligations, set the transaction price, allocate that price to each obligation, and recognize revenue as each obligation is satisfied. The standard reshaped reporting for subscription and software businesses in particular, where the timing of revenue rarely matches when cash arrives. Auditors examine these judgments closely because revenue is the line investors watch most. Applying ASC 606 well keeps reported sales aligned with the value actually delivered.