Revenue From Contracts With Customers
In 2014, the FASB issued its landmark standard, Revenue from Contracts with Customers, which has since been amended by various updates. It takes effect in 2018 for public companies and in 2019 for all other companies, and addresses virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as franchisors.
The new standard establishes a single, comprehensive framework which ascertains how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. The application of the core principle is carried out in five steps.