Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Danielle Supkis Cheek, a director on our Entrepreneurial Advisory Services team. Danielle, welcome back to the Playbook.
Danielle: Thanks for having me again.
Jen: So a few episodes back we talked about revenue recognition. Another one of our directors has also talked about it. What are the steps a company needs to take for revenue recognition?
Danielle: The actual standard has five steps that you need to take. From an operational standpoint, you’ll have to figure out what operations you need and how this changes things to see if you need operational steps.
But from a pure, “What does the standard require?”
- Step one: you actually have to identify – do you have a contract or not, and what is the contract?
- Then within the contract you have to identify the specific performance obligations. It can get a little tricky – are you delivering the walls of a house and a foundation or an entire house?
- Then what you need to do is actually determine the transaction price; sounds simple but sometimes with contingent consideration, it can get pretty tricky.
- Then you allocate that price to the specific performance obligations. Okay, you with me?
- And then you get a recognized revenue at the very end – step five.
Jen: Great. Thanks for sharing those five steps with us, and I know we can find it at PKFTexas.com on our Revenue Recognition Central. Is there going to be more content coming soon?
Danielle: Of course. It’s an ever-changing standard and an ever-changing area, so yeah, we’re going to keep it updated.
Jen: Perfect, thanks. For more about this topic, visit PKFTexas.com. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.