The past two months we have been communicating in this space about the Revenue Recognition Standard and the need to plan for its implementation. It is effective for nonpublic entities with annual reporting periods beginning after December 15, 2018. Organizations that have not adopted the standard in 2018 should plan now to analyze how it may affect them in 2019. This issue, we will look at the second step in implementing the standard, Identify performance obligations.
Performance obligations are the things a business is committed to providing to a customer – distinct goods and services. Distinct generally relates to an item that is able to be used by the customer on its own. If the item is dependent on other items in the contract (reminder that a contract may not be in writing – see Step 1), it is not considered distinct.
Identifying performance obligations will likely require significant time and judgement. For more information about implementing the revenue recognition standard, feel free to reach out to your SDK representative or Brandon Reinschmidt.
Previous articles in the series (click to read):