ASC 606 decides when a sale turns into revenue. In a loyalty program, it decides how much of each purchase waits on the balance sheet until members use their points. Finance makes that call, and the loyalty team holds most of the data behind it.
What is ASC 606?
ASC 606 is Topic 606 of the FASB Accounting Standards Codification, titled Revenue from Contracts with Customers. The FASB added it with ASU 2014-09 in May 2014. The IASB issued the same model that month as IFRS 15, so US GAAP and IFRS use the same core model.
The core principle fits in one sentence. A business books revenue “to depict the transfer of promised goods or services to customers” (ASC 606-10-05-3). The amount is what it expects to be entitled to in exchange.
Public business entities applied it to years that began after December 15, 2017, so calendar-year filers started in 2018. Other entities started a year later. A June 2020 update gave those that had not yet issued their statements one more year (Deloitte DART 1.1). IFRS 15 took effect for years starting on or after January 1, 2018 (IFRS Foundation).
What are the five steps of ASC 606?
ASC 606-10-05-4 lists five steps, applied in order (ASU 2014-09):
- Identify the contract. A contract is an agreement that creates rights and duties each side can enforce.
- Identify the performance obligations. Each distinct good or service the business promises is one. Each gets its own share of the price.
- Determine the transaction price. This is the amount the business expects to be entitled to for what it promised.
- Allocate the price. The price is split across the obligations by what each would sell for on its own.
- Recognize revenue. Revenue is booked when, or as, each obligation is met. That is when the customer gets control of what was promised.
Step two carries the most weight for loyalty. A promise is distinct when the customer can benefit from it alone or with things readily at hand. It also has to stand apart from the other promises in the deal (ASC 606-10-25-19).
How does ASC 606 treat loyalty points?
Points earned on a purchase are an option to buy later at a discount. ASC 606 makes that option its own performance obligation only when it gives the member “a material right” (ASC 606-10-55-42). The test is whether the member gets a discount a shopper outside the deal would not get.
When it does, the standard says the customer “in effect pays the entity in advance” for future goods (ASC 606-10-55-42). That prepaid part sits on the balance sheet as a contract liability, the duty to deliver what a customer has already paid for (ASC 606-10-45-2). Programs call it deferred revenue or the points liability.
Step four sets its size. The sale is split between the goods and the points by their standalone selling prices. For points, the price starts from the discount a member gets, cut for the chance the points go unused (ASC 606-10-55-44). The full method sits under standalone selling price.
How is points revenue released under ASC 606?
Points revenue follows redemptions. The standard’s own loyalty case, Example 52, shows the pattern. A business gives 1 point per $10 spent, and each point takes $1 off later. On $100,000 of sales it allocates $8,676 to 10,000 points and expects 9,500 to be redeemed (ASC 606-10-55-353 and 55-354).
After 4,500 points are redeemed, it books $4,110, which is 4,500 of the 9,500 expected. A liability of $4,566 stays on the books. A period later, 8,500 points are redeemed and it now expects 9,700. Revenue to date resets to 8,500 of 9,700, so it books $3,493 more and holds $1,073 (ASC 606-10-55-355 and 55-356).
Points expected never to be redeemed are breakage. A business that expects breakage books it in step with the redemptions it does see (ASC 606-10-55-48). The redemption forecast sets the timing of revenue, so it deserves the loyalty team’s best data.
What does each step need from a loyalty program?
Finance makes every ASC 606 judgment. Each one rests on records only the loyalty system holds.
| Step | What it decides for points | What finance needs from the loyalty team |
|---|---|---|
| 1. Contract | Which program terms apply to each purchase | Every version of the terms, with the date it took effect |
| 2. Performance obligations | Whether points are a material right | The rewards members can claim, and the discounts nonmembers already get |
| 3. Transaction price | The amount to split | Points issued on each sale, net of points reversed for returns |
| 4. Allocation | The share of each sale held back for points | Reward values, and redemption history by the month points were issued |
| 5. Recognition | When points revenue is released | Points redeemed, expired and still open each period, by issue month |
What do companies disclose about loyalty points under ASC 606?
ASC 606 asks for the opening and closing balance of contract liabilities. It also asks how much of this period’s revenue sat in the opening balance (ASC 606-10-50-8). Big changes in the balance need an explanation with numbers. Companies also state what is still owed and when they expect to book it (ASC 606-10-50-10 and 50-13).
Delta prints the full roll-forward. Its loyalty deferred revenue opened 2025 at $8,826 million. Miles earned added $4,892 million, and redemptions took out $4,456 million. The year closed at $9,262 million. Delta booked $4,876 million as current, its estimate of revenue in the next twelve months (Delta 2025 10-K).
Marriott reports the opening-balance line. Its loyalty liability rose to $7,992 million at the end of 2025. Of its 2025 revenue, $3,160 million had been deferred at the end of 2024. Updated estimates cut revenue by about $102 million and added the same to the liability (Marriott 2025 10-K).
How does a points liability roll forward?
For illustration, a grocery program opens the year with a $40.0 million points liability. Here is how the year runs:
- Earn. Members earn points that hold back $25.0 million of sales.
- Burn. Redemptions release $21.0 million to revenue. Of that, $16.0 million comes from points that were in the opening balance.
- Estimate. Late in the year, finance expects more points to be redeemed. A catch-up moves $1.5 million from revenue back to the liability.
- Close. The liability ends at $45.5 million, and points revenue for the year is $19.5 million.
The $16.0 million is the figure ASC 606-10-50-8 asks for. The $1.5 million is a change finance has to explain. Both start from redemption records. When each redemption traces back to its issue month, finance can show where every dollar came from.
How GRAVTY handles ASC 606
ASC 606 estimates belong to finance. Their inputs live in the program’s own history. GRAVTY records every earn, burn and expiry event at the member and transaction level (points liability). That is the record a roll-forward is built from.
GRAVTY tracks the cost and value of every point issued and redeemed. That gives finance and loyalty teams the liability and breakage insight they need to govern the program. For airline programs, Loyalty Juggernaut lists scenario planning and what-if analysis. The same list has an IFRS-compliant balance sheet and P&L (airline loyalty).
Step one needs a history of the terms, too. In GRAVTY’s patented Visual Rules engine, every rule is versioned with one-click rollback, and the full change history is open on demand. That gives finance the dated record of terms that step one asks for.
Frequently asked questions
Is ASC 606 the same as IFRS 15?
ASC 606 and IFRS 15 set out the same five-step model, with a few differences. The FASB and the IASB issued them together in May 2014 (Deloitte DART 1.1). Deloitte calls the two “nearly fully converged.” One gap sits in step one. Both require collection to be probable. US GAAP reads probable as likely to occur, and IFRS reads it as more likely than not (Deloitte DART, Appendix A).
What did ASC 606 replace?
ASC 606 replaced Topic 605 and most rules written for single industries in US GAAP (ASU 2014-09). On the IFRS side, IFRS 15 replaced IAS 18 and IAS 11. It also replaced IFRIC 13, the old rule for firms that give award credits to customers (IFRS Foundation).
Who has to follow ASC 606?
Any business that reports under US GAAP and sells goods or services to customers by contract follows ASC 606. Leases and insurance deals fall under other rules, so they sit outside it (ASU 2014-09).
Are loyalty points always a separate performance obligation?
No. Points are a separate obligation only when they give the member a material right (ASC 606-10-55-42). An option to buy at the standalone selling price is a marketing offer. The business accounts for it only when the customer uses it (ASC 606-10-55-43).
What is a contract liability under ASC 606?
A contract liability is a duty to deliver goods or services the customer has already paid for (ASC 606-10-45-2). In a loyalty program, it holds the value set aside for points not yet used. Delta calls its version loyalty program deferred revenue (Delta 2025 10-K). Marriott calls its own the liability for guest loyalty program (Marriott 2025 10-K).