Accounting SmartBook Practice Test

Under ASC 606/IFRS 15, revenue for a performance obligation can be recognized over time when progress toward fulfilling the obligation benefits the customer as it is performed, or when the entity is creating an asset for the customer that the customer controls as it is being created, or when the asset has no alternative use and the entity has an enforceable right to payment for the work completed to date. The most direct match to this concept is the scenario where the asset being created has no alternative use and the entity has an enforceable right to payment for the work already done; as the entity progresses, revenue is recognized over time because the customer benefits from the ongoing performance and the seller has a present right to payment for that progress.

Signing a contract without any goods or services delivered does not demonstrate progress or control of the asset, so it does not by itself support recognizing revenue over time. Revenue earned only after cash is received reflects cash-basis timing, not accrual recognition for ongoing performance. The fact that a contract is with a related party has no bearing on the timing of revenue recognition for a performance obligation.