Is the counterparty to the contract a customer?

A customer is defined as:

“a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration”

“Ordinary activities” are not defined within ASC 606, but U.S. GAAP’s Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements refers to them as “ongoing major or central operations”.

A counterparty that participates in an activity where both parties share in the related risks and benefits would not meet the definition of a customer.

Contracts may have multiple components, some of which maybe collaborative and outside the scope of ASC 606, and others which may relate to the purchase of goods and services in the ordinary course and would fall within the scope.

Contracts may have multiple parties. In these instances, the substance of the transaction, and each party’s relative position, must be evaluated to determine whether the counterparty is a customer.

Consideration maybe received directly from the customer, but this is not a requirement for the counterparty to be considered the customer.

ASC 606-10-15-3

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