The third step in the new revenue recognition guidance represents the halfway point within the five-step model to determining when, and how much, revenue to recognize.
The process of determining the transaction price, which is done for the contract as a whole, will continue to require the thoughtful application of principles that we noted in Steps 1 and 2.
The guidance identifies that the nature, timing and amount of consideration all affect the estimate of the transaction price for a contract. These factors result in the following five considerations when determining the transaction price:
- Variable consideration
- Constraining estimates of variable consideration
- Financing components of a contract
- Noncash consideration
- Consideration payable to the customer