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Receivable/Deferred Revenue Billing Timing Question

Given the following facts, when should the invoice date be? 12/31/14 or 1/1/15? *Contract signed/executed 12/31/14 (i.e., bookings count toward 2014 sales quota) *Contract term start 1/1/15 - 6/30/15 *Payment term: Prepay entire contract amount, net 30 B/S impact: 12/31/14 invoice date GL impact: DR: Receivable CR: Deferred Revenue Question: Do we truly have a receivable at 12/31/14 even though contract does not start until 1/1/15? From the customer's perspective, there is no liability on their end at 12/31/14, thus invoice would not be entered in their system until 1/1/15. Any input and accounting guidance would be appreciated!

Answers

Anonymous
(CFO/Board Advisor) |

One more fact needed: Is the contract cancellable or non-cancellable as of 12/31/2014? In other words, are you entitled to the money, no matter what, as of 12/31/2014?

Wei Le
Title: Accountant
Company: S
(Accountant, S) |

Is the contract cancellable or non-cancellable as of 12/31/2014?

This is not specifically called out in the contract, however customer does have the right to terminate due to performance.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

(i.e., bookings count toward 2014 sales quota) <<-- your intent is what is throwing you off. Look at your journal entry and think about the matching principle.

Anonymous
(Accountant) |

BTW, billing terms are bill upfront and payment is nonrefundable, do these additional facts have any bearing on invoicing date?

Emerson - By matching principle, are you indicating because there is no liability on the customer's end , thus we should not carry an asset at 12.31.14?

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

It is my opinion that your receivable and your revenue should be recorded/recognized in 2015. At best, it can be a footnote or disclosure in your financials.

You want to book 2015 revenue in 2014 to satisfy 2014 quota by invoicing it as 12/31/14 when the invoice should be dated 01.01.15.

Anonymous
(Accountant) |

Emerson, but we are not recognizing revenue in 2014, invoicing's impact is on deferred revenue, 100% of the invoice amount would be reflected in deferred revenue @ 12.31.14 and recognized as earned in 2015.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

You want to invoice 12.31.14 so you can defer the revenue? It does not make sense (to me). You should invoice it 01.01.15. It solves all your problems. My opinion is that you do not have a receivable in 2014.

As I said, at best, the transaction can be a footnote or a disclosure in your financials.

Gary Spencer
Title: Managing Partner
Company: Meon
(Managing Partner, Meon) |

Since, there is mild confusion, I would footnote the transaction in 2014. They, possibly will record the offsetting liability in 2015.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Another reason NOT to place it in receivables in 2014 is Audit Confirmation.

Dan Jebens
Title: CFO
Company: ToolWatch Corp
(CFO, ToolWatch Corp) |

Don't mix revenue recognition with when a sale gets booked. If you have a valid contract executed in 2014 it should get booked and show up in AR and Deferred Revenue in 2014. We have been through this with auditors under both perpetual license and SaaS accounting rules. You still need to evaluate collect-ability of the AR, just remember if you reserve any of the AR it goes against deferred revenue.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Invoice the item on January 15. No customer will pay terms based on an invoice issued on December 31 for something that starts January 15. A booked sale for commission purposes should not drive your accounting. Invoicing it on Dec 31, will create working capital management issues.

Gary Spencer
Title: Managing Partner
Company: Meon
(Managing Partner, Meon) |

I confirmed with a former auditor. The question is based on timing. The auditors will confirm transactipn subsequent to the B/S date to vouch revenue recognition. Don't allow a CY transaction to find it's way into the YE testing date. They will make an GE to move the transaction into the subsequent period. They will also suggest a footnote.

Now, you have to make a choice?

Gary Spencer
Title: Managing Partner
Company: Meon
(Managing Partner, Meon) |

Forgive any spelling error. I had a stroke, in January, so I am still slowly recovering.

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