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ASC 606: Improving The Accuracy Of Financial Statements

ASC 606: Improving The Accuracy Of Financial Statements

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One of the main new changes regarding how companies recognize revenue is how revenue should be recognized with regards to customer contracts not just relying on performance obligations. Specifically does the company control the goods or services before it is transferred to the customer in which case they would be the principal otherwise they are most likely an agent. Where classification becomes murky, is when there are multiple items included in a contract, some of which are goods, some are services, and others are rights to goods or services. ASC 606 strives to clarify how contracts should be classified in order to improve the accuracy of financial statements.

An example given on FASB/IASB Joint Transition Resource Group for Revenue Recognition

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