How does revenue recognition differ when performance is satisfied over time versus at a point in time?

The correct answer highlights a significant aspect of revenue recognition under the standards set by the Financial Accounting Standards Board (FASB), specifically in the context of the revenue recognition criteria outlined in ASC 606. When performance obligations are satisfied over time, the seller does not need to have control of the asset to recognize revenue. This reflects that in certain contracts, the transfer of control could occur gradually as services are performed or as work progresses, allowing for revenue to be recognized progressively rather than tied to a specific point in time when control shifts.

For instance, consider a construction project that spans multiple accounting periods. As the contractor completes portions of the project, they can recognize revenue based on the actual progress made, while the customer still does not possess the entire control of the completed asset until the project is finished.

This context is markedly different from situations where revenue is recognized at a point in time, where the seller fully transfers control of the asset to the customer. In such cases, revenue recognition is contingent upon the customer obtaining control, which typically means the transaction is assessed at a specific moment rather than throughout the process.

The other options do not accurately reflect the principles involved in revenue recognition. Revenue recognition at a point in time does not measure progress against performance obligations, nor