The five steps are:
- Identify the contract with the customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognize revenue when (or as) each performance obligation is satisfied.
The parenthetical in step five carries real weight: revenue is recognized at a point in time when control transfers, or over time when one of three criteria is met. The model reads as mechanical in outline. The work is applying it to contracts that do not map cleanly onto the five steps — bundled deliverables, variable consideration, modifications, and material rights.
Frequently asked questions
Identify the contract; identify the performance obligations; determine the transaction price; allocate the transaction price to the performance obligations; and recognize revenue when (or as) each performance obligation is satisfied. The standard applies the model to every contract with a customer within its scope.
See this on your own facts
Bring a real revenue recognition question. We'll walk the analysis with you and show you the citation trail.
Related
References: FASB ASC 606, Revenue from Contracts with Customers; IFRS 15 (for comparison). This page is general information, not accounting advice for a specific entity.
Written and maintained by the Gaapio team of CPAs. Last reviewed August 2026.