performance obligations
Performance obligations are the specific promises that a company makes to its customers as part of a contract. These obligations define what the company must deliver—such as products, services, or outcomes—and when. Each obligation is a measurable commitment, ensuring that customers receive what they paid for. For example, if you order a pizza, the performance obligation is the delivery of that pizza on time and in good condition. Businesses must track and fulfill these obligations to meet accounting standards and maintain customer trust.
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Performance obligations refer to the specific promises a business makes to deliver goods or services to its customers. In accounting, these obligations define what a company must complete to fulfill a contract. For example, if a customer pays for a new phone, the company has a performance obligation to provide that phone as agreed. Once the service or good is delivered, the obligation is considered fulfilled. This concept is important for accurately recognizing revenue and ensuring that businesses report their earnings in a transparent and consistent manner.