Please explain the collectability impact on revenue recognition under ASC 606 guidance


Answer: We assess the collectability criterion at the beginning of a contract. If it is met, we will take revenue. If it is not met, revenue contract does not exist, so there is no revenue. Over the contract term, there is no need to reassess the collectability for revenue recognition unless a significant change in facts and circumstances results in a significant deterioration in the customer’s creditworthiness. But we will not reverse revenue previously recognized. Accounts Receivable team can book bad debt allowance reserve and write off for non-payment. If the reassessment concludes that collectability criterion is not met, we need to stop future revenue. If the collectability criterion is still met, we will continue to take revenue, and Accounts Receivable can book bad debt allowance. If we conclude that a contract does not exist because the collectability criterion is not met, we don’t record a receivable for consideration that we have not yet received for the services we have already transferred to the customer. For the cash received, we recognize a deposit liability and record no related revenue. If the contract existence criteria is met upon reassessment, we would recognize a cumulative catch-up to revenue for the services already provided.