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Terms in this set (72)

-same 1-5 steps but
Step 2, "Identify the performance obligation(s) in the contract," is important because long-term contracts typically include many products and services that could be viewed as separate performance obligations. For example, constructing a building requires the builder to deliver many different materials and other products (concrete, lumber, furnace, bathroom fixtures, carpeting) and to provide many different services (surveying, excavating, construction, fixture installation, painting, landscaping). These products and services are capable of being distinct, but they not separately identifiable, because the seller's role is to combine those products and services for purposes of delivering a completed building to the customer.
- it's the bundle of products and services that comprise a single performance obligation.
-Most long-term contracts should be viewed as including a single performance obligation.

step 5- Step 5, "Recognize revenue when (or as) each performance obligation is satisfied," is important because there can be a considerable difference for long-term contracts between recognizing revenue over time and recognizing revenue only when the contract has been completed.
-ie builder who spends years constructing a skyscraper but only gets to recognize revenue at the end of the contract. Such delayed revenue recognition would do a poor job of informing financial statement users about the builder's economic activity.
- most long-term contracts qualify for revenue recognition over time.
-Often the customer owns the seller's work in process, such that the seller is creating an asset that the customer controls as it is completed.
-Also, often the seller is creating an asset that is customized for the customer, so the seller has no other use for the asset and has the right to be paid for progress even if the customer cancels the contract.
-In either of those cases, the seller recognizes revenue over time.