What should I check first in a FAR revenue recognition simulation?

Question

AcadiFi · Accepted Answer

Start with performance, not cash.

Ask whether the company has transferred the goods or performed the service by the reporting date. If cash arrived before performance, the credit is usually unearned revenue or a contract liability. If performance happened before billing or collection, revenue may be recognized with a receivable or contract asset depending on the facts.

The entry follows the timing:

```mermaid
flowchart TD
    A["Revenue fact pattern"] --> B{"Performance completed by reporting date?"}
    B -->|No| C["Record or keep liability"]
    B -->|Yes| D["Recognize revenue"]
    D --> E{"Cash received?"}
    E -->|Yes| F["Reduce liability if previously deferred"]
    E -->|No| G["Record receivable or contract asset"]
```

What should I check first in a FAR revenue recognition simulation?

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