2.1 Glossary Terms
ASC 606 contains a glossary of terms used in the revenue standard.
Several of these glossary terms are also used in other topics of U.S. GAAP (e.g.,
“public business entity” and “probable”). However, most of them are specific to ASC
606 (e.g., “contract asset” and “contract liability”).
Although there are not many terms in the standard’s glossary, a
significant number of them play a critical role in establishing the scope of the
guidance (e.g., “contract” and “customer,” as discussed in Chapter 3), establishing presentation of financial
statement line items (e.g., “contract asset” and “contract liability,” as discussed
in Chapter 14), and creating a
new definition of the unit of account for revenue (e.g., “performance obligation,”
as discussed in Chapter 5).
Also, as noted in the discussion of collectibility in Chapter 4, the definition of “probable” under U.S.
GAAP differs from that under IFRS Accounting Standards.
The terms and definitions below are reproduced from the ASC 606
glossary.
ASC 606-10 — Glossary
Contract
An agreement between two or more parties
that creates enforceable rights and obligations.
Contract Asset
An entity’s right to consideration in
exchange for goods or services that the entity has
transferred to a customer when that right is conditioned on
something other than the passage of time (for example, the
entity’s future performance).
Contract
Liability
An entity’s obligation to transfer goods or
services to a customer for which the entity has received
consideration (or the amount is due) from the customer.
Customer
A party that has contracted with an entity
to obtain goods or services that are an output of the
entity’s ordinary activities in exchange for
consideration.
Lease
A contract, or part of a contract, that
conveys the right to control the use of identified property,
plant, or equipment (an identified asset) for a period of
time in exchange for consideration.
Not-for-Profit
Entity
An entity that possesses the following
characteristics, in varying degrees, that distinguish it
from a business entity:
-
Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return
-
Operating purposes other than to provide goods or services at a profit
-
Absence of ownership interests like those of business entities.
Entities that clearly fall outside this
definition include the following:
-
All investor-owned entities
-
Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.
Performance
Obligation
A promise in a contract with a customer to
transfer to the customer either:
-
A good or service (or a bundle of goods or services) that is distinct
-
A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
Probable
The future event or events are likely to
occur.
Public Business
Entity
A public business entity is a business
entity meeting any one of the criteria below. Neither a
not-for-profit entity nor an employee benefit plan is a
business entity.
-
It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
-
It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
-
It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
-
It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
-
It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a
public business entity solely because its financial
statements or financial information is included in another
entity’s filing with the SEC. In that case, the entity is
only a public business entity for purposes of financial
statements that are filed or furnished with the SEC.
Revenue
Inflows or other enhancements of assets of
an entity or settlements of its liabilities (or a
combination of both) from delivering or producing goods,
rendering services, or other activities that constitute the
entity’s ongoing major or central operations.
Security
A share, participation, or other interest in
property or in an entity of the issuer or an obligation of
the issuer that has all of the following characteristics:
-
It is either represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer.
-
It is of a type commonly dealt in on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investment.
-
It either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations.
Standalone Selling
Price
The price at which an entity would sell a
promised good or service separately to a customer.
Transaction
Price
The amount of consideration to which an
entity expects to be entitled in exchange for transferring
promised goods or services to a customer, excluding amounts
collected on behalf of third parties.