Question

Consistent with ASU 2014-09, promises to transfer goods or services to customers are referred to as

a) Liabilities
b) Revenues
c) Assets
d) Equity

Answer 1

Promises to transfer goods or services to customers as per ASU 2014-09 are classified as (c) Assets. This reflects the obligations of a company under contract with a customer, which remain as assets until the goods or services are transferred and revenue can be recognized.

Step-by-step explanation:

In accordance with ASU 2014-09, promises to transfer goods or services to customers are referred to as (c) Assets. This accounting standard update, issued by the Financial Accounting Standards Board (FASB), outlines the principles for recognizing revenue and depicts promises to transfer goods or services as part of a contract with a customer,

which are recognized as assets on the balance sheet until they are fulfilled and revenue can be recognized.The updated standard provides a five-step model for accounting for revenue arising from contracts with customers and requires significant judgement in its application.

By recognizing these promises as assets, companies can provide relevant information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.