What is a Performance Obligation?

Per ASU 2014-09, a performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. If an entity promises in a contract to transfer more than one good or service to the customer, the entity should account for each promised good or service as a performance obligation only if it is (1) distinct or (2) a series of distinct goods or services that are substantially the same and have the same pattern of transfer.

A good or service is distinct if both of the following criteria are met:

  • Capable of being distinct: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer.

  • Distinct within the context of the contract: The promise to transfer the good or service is separately identifiable from other promises in the contract.

A good or service that is not distinct should be combined with other promised goods or services until the entity identifies a bundle of goods or services that is distinct.

To learn more about how SAP RAR 1.1 can help you define and manage performance obligations within the scope of a comprehensive RevRec environment, contact us be clicking the link below.

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