Textbook Problem

The first step in the revenue recognition process is determining if a contract is in place between the seller and the customer. A contract is an agreement between two or more parties that creates enforceable rights and obligations. The standard states that a contract may be written, oral, or implied by customary business practices. To be a contract, the accounting standard states that it must meet five criteria.

Required:

Discuss the criteria necessary for a contract to be considered under the revenue recognition process. How would a company account for a contract that does not meet the criteria?