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 immediately as revenue, reflecting the full nominal contract value
3. No adjustment for the implicit financing component is made as long as the cash is eventually collected in full amount.
4. The transaction price is increased so that it includes all of the interest the seller ultimately expects to collect over time

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