ASC 606 is a comprehensive revenue recognition standard that provides a framework for businesses to recognize revenue more consistently and transparently. It was issued by the Financial Accounting Standards Board (FASB) in the United States and is formally known as Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers." The standard was developed in collaboration with the International Accounting Standards Board (IASB), which released a similar standard called IFRS 15.

The core principle of ASC 606 is that an entity should recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

ASC 606 applies to all contracts with customers, except for those that are within the scope of other standards (such as lease contracts, insurance contracts, and financial instruments). It affects all entities—public, private, and not-for-profit—that have contracts with customers, with some exceptions.

The standard outlines a five-step model for revenue recognition:

1. Identify the contract with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations. The contract must be approved by the parties, have commercial substance, and it is probable that the entity will collect the consideration to which it will be entitled.

2. Identify the performance obligations in the contract: Performance obligations are promises in a contract to transfer goods or services to the customer. A good or service is distinct if the customer can benefit from it on its own or with other resources that are readily available, and if it is separately identifiable from other promises in the contract.

3. Determine the transaction price: The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. This can include fixed amounts, variable consideration, and may also involve significant financing components, non-cash considerations, or consideration payable to the customer.

4. Allocate the transaction price to the performance obligations: If a contract has more than one performance obligation, an entity must allocate the transaction price to each performance obligation in an amount that reflects the entity's entitlement relative to the satisfaction of each performance obligation.

5. Recognize revenue when (or as) each performance obligation is satisfied: Revenue is recognized when a performance obligation is satisfied, which occurs when the control of the promised good or service is transferred to the customer. This can occur over time or at a point in time, depending on the nature of the obligation.

ASC 606 also requires entities to provide more informative and relevant disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The implementation of ASC 606 can be complex and requires entities to exercise judgment and make estimates. It has significant implications for the revenue recognition practices of businesses across various industries, particularly those with long-term contracts, multiple-element arrangements, or complex transaction pricing.

ASC 606 replaced the previous revenue recognition standard, ASC 605, and for public companies in the U.S., it became effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, it became effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.