Revenue Over Time or Point in Time: How Do You Decide?
The length of a project does not decide recognition. Ask when control of the promised good or service transfers.
Over-time recognition
Revenue can be recognized over time when an applicable criterion is met, such as when the customer receives and consumes benefits as performance occurs, controls an asset being created, or the asset has no alternative use and the seller has an enforceable right to payment for performance completed.
Point-in-time recognition
If the obligation does not qualify for over-time recognition, revenue is generally recognized when control transfers at a point in time.
Indicators of control transfer
Indicators can include a present right to payment, transfer of legal title, physical possession, transfer of significant risks and rewards, and customer acceptance.
Construction-style questions
Do not assume every long project qualifies for over-time recognition. Apply the criteria in the facts.
Measuring progress
For over-time obligations, input or output methods may be used when they faithfully depict progress toward satisfaction.
The takeaway
Long project does not automatically mean over time.
Related Summit guides
FAQ
Does receiving cash early mean revenue is recognized early?
No.
Are all construction contracts over time?
No. Apply the criteria.
Can revenue be recognized gradually?
Yes, when the obligation qualifies for over-time recognition.