Generic Revenue Recognition Rules

Revenue generally is earned and realized or realizable when all of the following criteria are met:

• Persuasive evidence of an arrangement exists. The requirement that persuasive evidence of an arrangement exists is intended to ensure that the understanding between the parties about the specific nature and terms of a transaction has been finalized. Determining the proper accounting treatment for a transaction depends on evidence of the final understanding between the parties, because a change in terms could lead to a different conclusion regarding the revenue recognition model to apply.

• Delivery has occurred or services have been rendered. Unless delivery has occurred or services have been rendered, the seller has not substantially completed its obligations under the terms of the arrangement, and revenue should not be recognized. Delivery is generally deemed to have occurred when the customer takes title and assumes the risks and rewards of ownership.

• The seller’s price to the buyer is fixed or determinable. Whether the price is fixed or determinable depends on many factors, including payment terms, discounts, and rebates, which can vary from arrangement to arrangement. In determining whether the price is fixed or determinable, entities should evaluate all elements of an arrangement to ensure that amounts recognized as revenue are not subject to refund or adjustment.

• Collectibility is reasonably assured. If the collection of fees in an arrangement is not reasonably assured, the general principle of being realized or realizable is not met, and revenue recognition is precluded until collection is reasonably assured.