What it is
A change in scope or price on an existing revenue contract has three possible accounting outcomes: a separate contract, a termination and new contract applied going forward, or a cumulative catch-up. Which one applies depends on whether the added goods or services are distinct and priced at standalone selling price.
This memo sets the test as a decision table with a result and a treatment for each branch, measures the before and after position, and lists the entries. It closes with credit, cost, tax and disclosure items that follow the change.
When to use it
- When a customer amends scope, term or price during the contract.
- When change orders on a construction or service contract change the progress measure.
- When an unpriced change order needs an interim accounting position.
What’s inside
- Modification summary with approval date and what changed
- Test for a valid, enforceable modification
- Decision path A to D with the treatment of each outcome
- Before and after measurement of price, revenue and contract balances
- Journal entries for each path and related cost, credit and tax items
Standard cited
This template follows ASC 606. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
When is a modification a separate contract?
When it adds goods or services that are distinct and the added price reflects the standalone selling price of those additions, adjusted for the circumstances of the deal. The original contract then stays as it was.
What is a cumulative catch-up adjustment?
When the remaining goods or services are not distinct from those already transferred, the modification is treated as part of the original contract. The entity updates the transaction price and progress measure and records the revenue effect at the modification date.
What if the customer has not approved the price yet?
If the parties approved a change in scope but not the price, the entity estimates the price change as variable consideration and applies the constraint until the price is agreed.
Related templates
- ASC 606 Five-Step Contract Memo
- ASC 606 Revenue Recognition Schedule
- Construction WIP Schedule (Over / Under Billings)
- Disclosure Checklist: Revenue (ASC 606)
Last updated 11/05/2026. All free templates.