Which GAAP revenue recognition criterion requires persuasive evidence that an arrangement exists?

Which GAAP revenue recognition criterion requires persuasive evidence that an arrangement exists?

• A. Delivery has occurred or services have been rendered
• B. The price is fixed
• C. Persuasive evidence that an arrangement exists
• D. Collectability is reasonably assured

Answer: (C)

Persuasive evidence that an arrangement exists is the prerequisite for recognizing revenue because it confirms there is a binding contract or formal agreement with the customer. Without this evidence, revenue could be recorded for promises that aren’t enforceable or may never materialize. Common forms include a signed contract, a purchase order, or other formal documentation that outlines the arrangement and the obligation to pay. Once this arrangement evidence is established, you then evaluate the other criteria—delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured—to determine when control transfers and revenue can be recognized.

Persuasive evidence that an arrangement exists is the prerequisite for recognizing revenue because it confirms there is a binding contract or formal agreement with the customer. Without this evidence, revenue could be recorded for promises that aren’t enforceable or may never materialize. Common forms include a signed contract, a purchase order, or other formal documentation that outlines the arrangement and the obligation to pay. Once this arrangement evidence is established, you then evaluate the other criteria—delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured—to determine when control transfers and revenue can be recognized.