What is ASC 606 revenue recognition?

ASC 606 is the FASB standard for recognizing revenue when control of a good or service transfers to the customer, for the amount expected in exchange. It uses one five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate that price, and recognize revenue as each obligation is satisfied.

By Zuny Fester, Head of Operations and Marketing

Reviewed by Zuny Fester

Published September 8, 2026Last reviewed September 8, 2026Editorial policy

Part of the revenue recognition guide.

Issued by	FASB (US GAAP), as ASU 2014-09
Effective date	Annual periods after Dec 15, 2017 (public); 2018 (private)
International equivalent	IFRS 15, issued by the IFRS Foundation
Core model	Five-step revenue recognition model
Applies to	Contracts with customers, virtually all industries

What problem does ASC 606 solve?

Before 2014, US GAAP had dozens of industry-specific revenue rules. ASC 606 replaced them with one principle-based model applied consistently across industries.

How does the five-step model work?

Each step narrows from "do we have a contract" down to "how much revenue do we recognize, and when" — see the worked example below.

Next step

Map the finance workflow with the most exposure and prove the automation path.

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Worked example

The five-step model applied to a SaaS contract

Identify the contract — a signed 12-month SaaS agreement for $12,000/year.
Identify performance obligations — software access and onboarding services (both distinct).
Determine the transaction price — $12,000 total consideration.
Allocate the price — $10,800 to software access, $1,200 to onboarding, by standalone selling price.
Recognize revenue — $900/month for access over 12 months; $1,200 when onboarding is delivered.

Frequently Asked Questions

Yes. Private companies follow the same five-step model, effective for annual periods beginning after December 15, 2018.

They share the same five-step model and were developed jointly, but differ in areas like licensing guidance, collectibility thresholds, and disclosure detail.

The prior industry- and transaction-specific US GAAP revenue guidance that existed before the 2014 standard.

Sources

How-to

How do you calculate a contract's transaction price under ASC 606?

Transaction price is the consideration a company expects in exchange for goods or services. Start with the stated contract price, add variable consideration using the expected-value or most-likely-amount method, constrained to amounts unlikely to reverse, adjust for any significant financing component, then subtract noncash consideration and amounts payable to the customer.

Diagnostic

Why doesn't deferred revenue match the general ledger?

Deferred revenue usually drifts from the general ledger when the billing system's revenue schedule isn't synced to GL journal entries, or when manual entries post outside that schedule. Reconcile the deferred revenue roll-forward against the GL trial balance at the contract-line level, not the invoice level, to find exactly where the two diverge each month.

Comparison

ASC 606 vs IFRS 15: what's the difference?

ASC 606 and IFRS 15 share the same five-step revenue recognition model and were developed jointly by the FASB and IFRS Foundation. They differ in details: ASC 606 applies a stricter US GAAP collectibility threshold, includes explicit licensing implementation guidance, and requires more granular interim disclosures for public companies than IFRS 15 does.