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Rev rec for web-based data access services

Bryan Frey's Profile

We offer a web-based service which is akin to online yellow pages. Our customers sign a non-cancelable 12 month contract for the service and we keep the website up and running to provide their data to our end-users. They do not pay per click, it is purely a listing service and the end-users can access it for free. Is the rev rec for this just a straight line amortization over the term of the contract? Thanks.

Answers

Jeff Taylor
Title: CFO
Company: Communications Co.
(CFO, Communications Co.) |

Seems to me that you are in the business of "delivering" your service to your customers for the full 12 months of the contract. Even if their payment is non-cancellable that doesn't mean you have held up your end of the bargain. Thus I would think that you would amortize your revenue ratably (straight-line) over the term of the contract.

Bryan Frey
Title: VP Finance/Corp Controller
Company:
(VP Finance/Corp Controller, ) |

Thanks, that's what I figured. Now does anyone know the debits and credits? We collect the money up front from the customer and then deliver the service over the 12 month period. I'm thinking there's deferred revenue involved but I'm not a CPA.

Liz Armstrong
Title: Controller, consulting
Company: Consulting
(Controller, consulting, Consulting) |

Yes, you are correct the entry should be to deferred revenue. The entries are:

Dr. Cash
Cr. Deferred Revenue (Balance sheet account)
Record receipt of cash from customer

Dr. Deferred Revenue
Cr. Revenue (P&L account)
Record your monthly amortization of subscription revenue

Bryan Frey
Title: VP Finance/Corp Controller
Company:
(VP Finance/Corp Controller, ) |

No noise and smart, helpful people. Thanks Liz!

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