If you`re in the manufacturing industry, you may have already heard of the new Financial Accounting Standards Board (FASB) standard called ASC 606. This accounting standard sets out new rules for recognizing revenue from customer contracts. One of the changes brought about by ASC 606 is the introduction of a new term: contract assets.

Contract assets are essentially an asset that arises from a contract when an entity has transferred goods or services to a customer but has not yet invoiced for them. According to ASC 606, companies must recognize contract assets for any amounts that they have a right to receive that aren`t yet due under the terms of the contract.

So, what does this mean for manufacturers? Under ASC 606, manufacturers must recognize contract assets when they have delivered goods or services to a customer but have not yet billed for them. For example, if a manufacturer delivers a product to a customer but hasn`t issued an invoice for it yet, they would recognize a contract asset on their balance sheet.

Contract assets under ASC 606 are recognized based on the right to payment for goods or services transferred to the customer. This means that if a manufacturer has delivered goods or services to a customer but hasn`t yet billed for them, they should recognize a contract asset on their balance sheet.

The new ASC 606 standard also brings about other changes that manufacturers need to be aware of. For example, companies must now identify performance obligations in their contracts and allocate revenue to them based on their standalone selling prices. This means that manufacturers must analyze their contracts and determine which performance obligations exist and what their standalone selling prices are.

In addition, ASC 606 requires companies to disclose information about their contracts, including the significant judgments made, the timing of revenue recognition, and the amount of revenue recognized. This means that manufacturers must have good record-keeping practices in place to ensure that they can provide this information when needed.

In conclusion, the new ASC 606 standard brings about changes that manufacturers need to be aware of, including the recognition of contract assets. To ensure compliance with the new standard, manufacturers must analyze their contracts, determine their performance obligations, and have good record-keeping practices in place. By doing so, they can ensure that they are ready for the new accounting rules and can continue to operate their businesses smoothly.