Wiley GAAP 2019

40ASC 705 COST OF SALES AND SERVICES

PERSPECTIVE AND ISSUES

Technical Alert

This topic previously merely linked to guidance in other Codification topics because the asset liability model generally results in the inclusion of guidance on costs of sales and services in other topics. However, ASU 2014-09 restructured this topic and added Subtopic 705-20 to relocate guidance from ASC 605-50 on customer accounting for consideration received from a vendor. The guidance in ASC 705-20 is effective upon implementation of ASU 2014-09.¹

Subtopics

ASC 705 contains two subtopics:

• ASC 705-10, Overall, which merely links to guidance in other Codification topics on costs of sales and services.
• ASC 705-20, Accounting for Consideration Received from a Vendor.

DEFINITIONS OF TERMS

See Appendix A, Definitions of Terms, for terms related to this topic: Cash Consideration, Contract, Customer, Probable, Reseller, Revenue, Standalone Selling Price, and Vendor.

CONCEPTS, RULES, AND EXAMPLES

ASC 705-20, Accounting for Consideration Received from a Vendor

In some arrangements, an entity may receive consideration from a vendor. The consideration may be in the form of cash, credit, coupons, etc. This consideration should be accounted for by reducing the purchase price of goods or services acquired from the vendor, except if it is received:

• In exchange for a distinct good or service transferred to the vendor. In this case, the consideration should be accounted for in the same manner as other ...