Accounting Changes: A 5-Step Model for Revenue Recognition

Revenue recognition has never been more important, or more complex. Recent updates to the accounting standard FRS 102, sees the introduction of a rigorous, five-step model that governs when and how businesses recognise revenue from contracts with customers. Companies reporting under FRS102 must apply the model for accounting periods commencing on or after 1 January 2026. (1)

At Plus Accounting, we stay ahead of the latest accounting changes so you can focus on what you do best: growing your business. Here is what you need to know about the new five-step revenue recognition model.

The Five Steps to Recognise Revenue 

1. Identify the Contract with the Customer 

• A valid contract must be agreed, approved, and enforceable.
• Ensure you document terms, pricing, and deliverables clearly.

2. Identify the Performance Obligations 

• Break the contract into distinct goods or services (“performance obligations”).
• Each obligation must be accounted for separately if the customer can benefit from it on its own.

3. Determine the Transaction Price 

• Establish the amount you expect to receive in exchange for fulfilling the contract.
• Consider variable elements like discounts, rebates, or performance bonuses.

4. Allocate the Transaction Price 

• Allocate the total transaction price to each performance obligation based on standalone selling prices.
• Use estimates or observable market prices to ensure fair allocation.

5. Recognise Revenue When (or as) You Satisfy Performance Obligations 

• Revenue is recognised when control of each good or service transfers to the customer.
• This may be at a point in time (e.g., delivery) or over time (e.g., subscription services).

Why This Matters to Your Business 

• Compliance & Risk Management
  Misapplication of these steps can lead to misstated revenues and audit failures. 

• Better Business Decisions
  Accurate, timely recognition of revenue provides a true picture of performance, which is critical for budgeting, forecasting, and securing finance. 

• Investor Confidence
  Transparent financial reporting under the new model boosts credibility with investors, lenders, and stakeholders. 

How Plus Accounting Supports You 

Contract Reviews
We will help you understand how to review your customer contracts to identify obligations and ensure you have the right documentation in place.

Tailored Revenue Models
We will help you create a methodology to determine and allocate transaction prices tailored to your business.

Take Action Today 

If you would like help tailored to your circumstances, our team is here to help. Contact Plus Accounting on 01273 701200 or email info@plusaccounting.co.uk to arrange a short, no-obligation scoping call and find out how we can support your business going forward.

(1) (Early adoption is permitted but all relevant amendments made to FRS102 under the Periodic Review 2024 would also have to be adopted.)