Which of the following is NOT a criteria to recognize revenue over time?

Question

BlackTom AI · Accepted Answer

ASC 606 identifies three specific indicators that permit recognizing revenue over time: (1) the customer simultaneously receives and consumes the benefits of the seller’s performance as it occurs; (2) the customer controls the asset as it is created or enhanced; and (3) the seller is creating an asset that has no alternative use to the seller and the seller has an enforceable right to payment for performance to date.

Step-by-step reasoning:
1. List the official criteria from ASC 606: (a) consumption as performed, (b) customer control during creation, (c) no alternative use + enforceable right to payment. These are the three mutually accepted bases for over-time recognition.
2. Compare each answer option to these criteria:
   - "The customer consumes the benefit of the seller's work as it is performed" directly matches criterion (1).
   - "The customer controls the asset as it is created" directly matches criterion (2).
   - "The seller is creating an asset that has no alternative use to the seller and the seller has the legal right to receive payment for progress to date" matches criterion (3) (note both the "no alternative use" and the "enforceable right to payment" elements are required).
3. Evaluate the remaining option: "The seller incurs costs over time and a contract has been established." While a valid contract is a prerequisite for revenue recognition, merely incurring costs over time (and having a contract) is neither a formal ASC 606 indicator nor sufficient to justify recognizing revenue over time. Costs incurred are an outcome of performance, not one of the three controlling criteria that determine whether control transfers over time. Therefore this statement is not a recognized criterion.

Why the other options are not the correct answer: each of them matches one of ASC 606’s three explicit over-time recognition tests and therefore are valid criteria.

Conclusion: The option "The seller incurs costs over time and a contract has been established" is NOT a criterion for recognizing revenue over time, which confirms the provided answer.

Which of the following is NOT a criteria to recognize revenue over time? 单项选择题

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