Accounting 606 vs 605: Understanding the Key Differences in Revenue Recognition

Accounting Standards Codification (ASC) 606 and ASC 605-35 are two important frameworks that govern revenue recognition in the business world. In this blog post, we will explore the key differences between ASC 606 and ASC 605-35 and understand how they impact various industries.

What Is ASC 606?

ASC 606 is a standardized accounting principle for revenue recognition that provides a unified framework for all businesses across different industries. It was introduced to ensure consistency and transparency in revenue recognition practices.

What Is ASC 605-35?

ASC 605-35, formerly known as SOP 81-1, is the previous accounting standard for revenue recognition. It had specific guidelines for certain industries, such as aerospace and defense, which have now transitioned to ASC 606.

Key Differences Between ASC 606 and ASC 605-35

Aerospace and Defense Spotlight: Key Differences

The Aerospace and Defense industry has unique accounting challenges, and understanding the key differences between ASC 606 and ASC 605-35 is crucial for entities in this sector. The transition from ASC 605-35 to ASC 606 brings about changes in revenue recognition methods, criteria, and steps. Entities in this industry need to adapt to the new framework to ensure compliance and accurate financial reporting.

ASC 606 and Sales Compensation

ASC 606 also has implications for sales compensation. It defines standardized accounting principles for revenue recognition, which directly affects the calculation of sales commissions and incentives. Understanding the impact of ASC 606 on sales compensation is essential for businesses to align their compensation plans with the new revenue recognition standards.

Automating ASC 606 Compliance

ASC 606 compliance can be complex and time-consuming, especially for businesses with recurring revenue models. Automating revenue recognition processes can streamline compliance efforts and reduce the risk of errors. Utilizing solutions like Performio can simplify ASC 606 compliance and ensure accurate revenue recognition.

Conclusion

ASC 606 and ASC 605-35 are two significant accounting standards that govern revenue recognition. The transition from ASC 605-35 to ASC 606 brings about changes in revenue recognition practices across industries. It is crucial for businesses to understand and adapt to these changes to ensure compliance and accurate financial reporting.