1. Using Revenue Management
  2. Example of Accounting Before ASC 606 and IFRS-15

Example of Accounting Before ASC 606 and IFRS-15

In this example, John enters into a 12-month telecommunications plan with the local mobile operator ABC.

The terms of the plan are as follows:

  • Performance Obligation 1: John's monthly fixed fee is USD 100 (for talk, data, text, and network services).
  • Performance Obligation 2: John receives a free mobile phone at the inception of the plan.

ABC sells the same mobile phones for 300 USD and the same monthly prepayment plans without the mobile phone for USD 80 per month. These prices are the unit standalone selling prices.

Before the introduction of the ASC 606 and IFRS-15 accounting standards, the accounting would typically have produced the following accounting entries:

Initial Accounting Entry

Account Debit Credit Description
Cash 1200 Booked on the day the payment is received.
Revenue 1200 Booked on the day the invoice is created.

You create an invoice and receipt in Receivables. The accounting entry for the invoice looks like this:

Invoice Accounting Entry

Account Debit Credit
Receivables 1200
Revenue 1200

When you create the receipt and apply it to the invoice, the accounting entry looks like this:

Accounting Entry for Receipt Applied to the Invoice

Account Debit Credit
Cash 1200
Receivables 1200

The net result is:

Net Result

Account Debit Credit
Cash 1200
Revenue 1200