ASC 606 is the US accounting standard for recognizing revenue from contracts with customers. It defines a five-step model for when and how much revenue a company records as it satisfies its obligations.
ASC 606 is the accounting rulebook for when a company is allowed to count revenue. Issued by the FASB as "Revenue from Contracts with Customers," it replaced a patchwork of industry-specific rules with one principle: recognize revenue as you deliver what the customer paid for, not necessarily when you bill or get paid.
How ASC 606 works
ASC 606 defines a five-step model for recognizing revenue from a customer contract:
- Identify the contract with the customer.
- Identify the performance obligations (the distinct goods or services promised).
- Determine the transaction price.
- Allocate the price to each performance obligation.
- Recognize revenue as each obligation is satisfied.
The core idea is that revenue is earned as obligations are met. Cash collected for services not yet delivered is deferred revenue (a liability) and recognized over time as the service is provided. Billing and revenue recognition are separate: you can bill upfront but recognize over the period.
ASC 606 examples
A SaaS company sells a $1,200 annual plan billed upfront. Under ASC 606 it recognizes $100 of revenue each month as access is delivered, holding the rest as deferred revenue. A usage-based product recognizes revenue as usage occurs, since that is when the obligation is satisfied.
A contract bundling software plus onboarding has two performance obligations; the price is allocated between them and each is recognized as delivered, the onboarding when performed, the software over the term.
ASC 606 vs IFRS 15
| ASC 606 | IFRS 15 | |
|---|---|---|
| Issued by | FASB (US GAAP) | IASB (IFRS) |
| Scope | US-reporting companies | IFRS-reporting companies |
| Model | Same five-step model | Same five-step model |
| Differences | Some on licenses, collectibility | Minor wording and application |
Benefits & when to use it
ASC 606 is not optional for US companies reporting under GAAP; it is the required standard for recognizing contract revenue. Beyond compliance, its discipline matters for any subscription or usage business: it forces a clean split between cash billed and revenue earned, which is what makes deferred revenue and run-rate metrics meaningful.
It becomes operationally heavy when contracts have multiple obligations, variable consideration (usage), or mid-term changes, exactly the conditions in modern SaaS. For the AI and usage angle, see revenue recognition for usage-based billing.
FAQ
What is the ASC 606 five-step model?
Identify the contract, identify the performance obligations, determine the transaction price, allocate the price to the obligations, and recognize revenue as each obligation is satisfied. It governs when and how much revenue a company records.
What is the difference between ASC 606 and IFRS 15?
They are the converged US and international revenue standards and share the same five-step model. ASC 606 is US GAAP (FASB); IFRS 15 is international (IASB). Differences are minor, mostly around licenses and certain application details.
How does ASC 606 treat usage-based billing?
Revenue from usage is generally recognized as the usage occurs, because that is when the performance obligation is satisfied. Amounts billed for usage not yet consumed (prepaid credits) are deferred until used.
How Credyt handles ASC 606
Credyt does not replace your accounting system, but it produces the event-level data ASC 606 needs for usage and credits. Because every usage event is metered and debited in real time and attributed per customer, the moment an obligation is satisfied is captured precisely, which makes recognizing usage revenue and tracking deferred prepaid credit balances far cleaner than reconstructing it from a month-end invoice. Explore Credyt →