ASC 606 provides a standardized framework for which aspect of accounting?

• A. Revenue recognition
• B. Hiring practices
• C. Inventory counting
• D. Tax compliance

Answer: (A)

Revenue recognition from contracts with customers is what ASC 606 standardizes. It provides a five-step approach to determine when and how much revenue to recognize and what disclosures to provide. First, identify the contract with a customer; second, identify the performance obligations; third, determine the transaction price; fourth, allocate the price to each performance obligation; fifth, recognize revenue as those obligations are satisfied. This framework applies broadly across industries and helps make revenue numbers more comparable across companies and reporting periods. It doesn’t cover hiring practices, which relate to human resources; nor does it govern inventory counting or tax compliance, which fall under other guidance or laws.