Chapter 2 — Symbols and Defined Terms

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.