Revenue Recognition: Performance Obligations Satisfied Over Time
Performance obligations are recognized either over time or at a specific point in time. The distinction is important because the decision affects when revenue is recognized. Judgment is required to determine which method best measures the progress of the performance obligation.
Performance obligations are deemed to be satisfied over time when the goods or services are delivered in stages, rather than all at once. For a contractor, a retention receivable is the money the customer holds back (retains) until certain benchmarks in the project are met, for example when the concrete is poured or when the plumbing work is finished. The final retainage receivable is not disbursed until the project is completed.
To help you stay in compliance with revenue recognition standards, save this Construction Issue Sheet.