RevRec Ready Hot-Tip #17 – What is a Performance Obligation?
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.