Variable Consideration

Variable consideration refers to the uncertainty in the amount of revenue a company expects to earn from a sale due to factors like discounts, refunds, or performance bonuses. For instance, if a business sells a product and offers a discount if sales exceed a certain level, the final income isn’t fixed. Companies must estimate this potential variability when reporting revenue to accurately reflect their financial position. This approach helps ensure that reported earnings are realistic and reflect actual expectations, rather than just the sticker price.