In revenue recognition with variable consideration, which principle governs when to recognize variable amounts?

• A. The constraint limits variable consideration until it is highly probable no significant reversal will occur.
• B. Revenue is recognized as soon as the contract is signed.
• C. Variable consideration is ignored until the contract ends.
• D. Variable consideration is recognized only when cash is received.

Answer: (A)

When revenue includes amounts that can vary, you include those variable amounts in the transaction price only to the extent it is highly probable that recognizing them will not result in a significant revenue reversal later. This constraint protects against recognizing too much revenue upfront when the final amount depends on future events. As more information becomes available and the uncertainty resolves, you adjust the estimate and recognize revenue accordingly. Revenue is recognized when the performance obligation is satisfied, not merely when the contract is signed or cash is received, and not by ignoring variable amounts until the end.