IDENTIFY PERFORMANCE OBLIGATIONS

This is possibly the most important step in the new revenue framework as it establishes the unit of account for revenue recognition. A miscalculation in this step will quite possibly lead to a material error in the recognition of revenue.

Identify everything

Identify all material explicit and implicit promised goods or services in the contract.

To bundle or not?

Determine if a good or service (or a bundle of goods or services) are capable of being distinct. 'Distinct' is a defined paradigm laid out in ASC-606-10-25-20.

If not, combine two or more goods or services and reevaluate the new bundle.

See Definition of distinct

Performance obligations

Determine if there is a series of distinct goods or services that result in a single performance obligation.

Define the nature of the promise

What has your company promised to the customer?  Sometimes this is easy and sometimes its not.  The latter often involves critical judgments that your company must make in determining the correct unit of account (i.e., performance obligation).