Question

The following represents the five steps in the revenue recognition model, in random order:

1. Determine the transaction price Identify the contract with the customer
2. Recognize revenue as the entity satisfies performance obligations
3. Allocate the transaction price to the performance obligations in the contract
4. Identify the performance obligations in the contract
5. Identify the contract with a customer.


Place the steps to apply the core revenue recognition principle into the correct order.

Answer 1

Answer:

The correct order is 5-4-1-3-2

Explanation:

Revenue Recognition is a Generally Accepted Accounting Principle which outlines the specific conditions in which revenue must be recognized and also stipulates ways and when to account for it. The order of the revenue recognition model is:

1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue as the entity satisfies performance obligations.