Accounting Standards Update No. 2014-09
Definition
Accounting Standards Update No. 2014-09 (ASU 2014-09) is an update to revenue recognition guidance under U.S. GAAP issued by the Financial Accounting Standards Board (FASB). It establishes a comprehensive framework for recognizing revenue from contracts with customers.
5 Must Know Facts For Your Next Test
- ASU 2014-09 introduces a five-step model for revenue recognition: identify the contract, identify performance obligations, determine the transaction price, allocate the transaction price, and recognize revenue when (or as) performance obligations are satisfied.
- The update aims to improve comparability of revenue recognition practices across industries and capital markets.
- Entities must disclose sufficient information to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
- The standard applies to all entities entering into contracts with customers except for certain specific transactions such as lease contracts, insurance contracts, financial instruments, and guarantees.
- ASU 2014-09 was effective for public entities for annual reporting periods beginning after December 15, 2017, and one year later for non-public entities.
Review Questions
- What are the five steps in the model established by ASU 2014-09 for recognizing revenue?
- Why was ASU 2014-09 introduced by FASB?
- Which types of transactions are excluded from the scope of ASU 2014-09?
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Related terms
GAAP: Generally Accepted Accounting Principles are a set of rules encompassing details, complexities, and legalities of business and corporate accounting.
Revenue Recognition Principle: This principle states that revenue should be recognized when it is earned and realizable.
Performance Obligation: A promise in a contract with a customer to transfer distinct goods or services.
