medium · Financial Accounting revenue-recognition

In Step 3 of ASC 606, if a contract has a significant financing component (e.g., payment is delayed for 2 years), how is the transaction price adjusted?

1. It is adjusted for the time value of money, resulting in lower revenue and the recognition of interest income over time.
2. The entire future cash amount is recognized as revenue immediately to reflect the total contract value.
3. No adjustment is made as long as the cash will eventually be collected.
4. The transaction price is increased to include all expected interest collections.

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