How the New Revenue Recognition Standard Impacts Food and Beverage Companies

This article was updated October 2020.

When the COVID-19 pandemic disrupted the US economy, the Financial Accounting Standards Board (FASB) voted in May 2020 to extend the effective date of the revenue recognition standard by one year based on the recommendation of the American Institute of Certified Public Accountants’ (AICPA) Technical Issues Committee (TIC).

For private, nonpublic companies who haven’t issued their financial statements yet, the effective date will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

In a comment letter to the FASB, TIC explained through feedback from certain clients of its members, it learned many private companies had to turn nearly all their attention to addressing survival of operations through months of decreased or nonexistent operations; and the remote work environments caused by the pandemic can make routine, day-to-day financial accounting tasks challenging.


In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606). This standard, along with subsequent amendments and clarifications issued by the FASB, fundamentally changed how companies across industries recognized, measured, presented, and disclosed information about revenue.

Under this guidance, a company has to recognize revenue when it transfers goods or services to a customer, rather than when the risk of loss from the sale of goods or services has passed to the customer.


While the impact of the standard on food and beverage companies who have adopted it generally hasn’t been as drastic as it was for others—such as the technology industry where long-term and multiple-element arrangement contracts are customary and require significant time to analyze—most companies still need to spend extra time reviewing their revenue channels for other affected areas to analyze impacts of the standard.

Prior to adoption of the standard, all food and beverage companies needed to revisit their financial statements and consider any necessary enhancements to meet the revenue recognition presentation and disclosure requirements. Now, companies who’ve already adopted the standard could use the next reporting period as an opportunity to reassess for any business changes and improve disclosures.

Following are the key areas food and beverage companies need to consider when implementing the revenue recognition standard.

Incentive Offers

Companies need to evaluate whether or not the incentives they provide to customers are separate performance obligations. For example, companies should consider whether or not individual goods and services in bundled arrangements should be accounted for separately—with a portion of the total arrangement fee recognized as revenue each time a product or service is delivered—or whether all revenue in the arrangement must be deferred and recognized once the final good or service in the contract is delivered.

Such incentives may be cash-based—such as volume discounts, cash rebates, and coupons—or in the form of free goods or services. If the incentives are identified as separate, companies need to allocate a portion of the transaction price to the incentivized goods or services. If the value of the incentive is variable, companies must make an estimate based on historical data, budget forecasts, or both.

Trade Spending

Providing a certain level of product support for your sales channels—trade spending—is part of doing business as a food and beverage manufacturer. However, the process isn’t without its issues when it comes to financial accounting and reporting.

Under legacy US generally accepted accounting principles (GAAP), trade spending incentives are presumed to be a reduction of revenue. It can be overcome if a company shows it received an identifiable benefit from the trade spend.

An example of an identifiable benefit is a good or service the company pays to promote or market their product regardless of whether or not the customer purchases the company’s product.

Product demonstration costs or advertising are generally viewed as activities that generate identifiable benefits. The amount paid for these types of goods or services also must be representative of fair value. In the event the amount paid exceeds fair value, the excess amount should be netted against revenue.

The new revenue recognition standard, ASC 606, is similar with two key changes:

  • Determination occurs at the beginning of the contract as to whether or not an identifiable benefit—referred to as distinct good or service—is received.
  • A reduction of revenue will be recognized earlier in some cases because of variability with the distinct good or service—for example, variability in volume estimates.

Under legacy GAAP and the guidance of ASC 606, items typically reflected as a reduction of revenue include the following:

  • Discounts
  • Volume rebates
  • Manufacturer charge backs
  • Buydowns
  • Slotting fees

Sell-Through Models

Many food and beverage companies used the sell-through method under legacy GAAP when recognizing revenue from sales to distributors. Under this method, revenue isn’t recognized until the product is sold through the sales channel to the end consumer.

This accounting policy is appropriate when distributors are afforded generous return rights, price protection privileges, or other entitlements that call into question whether the arrangement fee is fixed or determinable—a necessary condition for revenue recognition under legacy GAAP.

Under the ASC 606, revenue is recognized upon transferring control of a good or service to the distributor regardless if the arrangement fee is fixed or determinable. However, the amount of revenue recognized may be constrained to reduce the risk of a future reversal of revenue resulting from variable consideration components of the transaction price.

ASC 606 eliminates the sell-through method of revenue recognition and requires more judgment when determining the amount of revenue to recognize upon transferring control of goods to a distributor.

Sales Commissions and Other Associated Contract Costs

Under ASC 606, incremental costs of obtaining a contract with a customer are capitalized as an asset if the company expects to recover those costs. In some cases, this means the commissions or related sales expenses should be capitalized then amortized evenly over the initial term of the contract.

However, there’s a practical expedient that could be elected to expense such costs when incurred if the amortization period—if such costs were capitalized—is one year or less.

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For more information about how the revenue recognition standard could impact your company, please contact your Moss Adams professional.

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