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Revenue Rec Question for Management Companies

I am curious as to whether we have the right to recognize revenue in the following scenario: -We are a management company (may be analagous to a property manager of an apt complex). -We pay ALL of the expenses of our customer and bill them monthly. We also bill them a monthly managment fee. -I'm curious if the pass through of expenses would be Revenue to us or a reduction of the expense on our books? -I can get my head around alot of things that will be revenue to us, but am stuck on some things that our customer will have liabiliy for: lease payments, insurance premiums. (in these cases we will pay the vendor on a contract in the customer's name and receive reimbursement for it later). Any thoughts as to what should be Revenue (besideds the management fee) and what would be reductions to expense?


Krista Mann
Title: Chief Financial Officer
Company: RKN, Inc (formerly Uptake Medical Corp)
(Chief Financial Officer, RKN, Inc (formerly Uptake Medical Corp)) |

This sounds similar to reimbursable expenses in the A&E (Architecture & Engineering) industry. Standard presentation is to record Service Revenue (your management fee) plus Reimbursable Revenue (pass-through invoices) less Reimbursable expenses (cost of pass-through expenses) which equals Net Service Revenue (NSR). The NSR captures any markup you charge on these pass-through charges. This method also has the benefit of keeping the Management Company's operating expenses separate from pass-through costs allowing you to simply run your op ex analysis as a % of NSR.

Topic Expert
Doug Thompson
Title: Director of Revenue
Company: Castlight Health
(Director of Revenue, Castlight Health) |

Krista is correct, but usually recording reimbursable revenue separately from expenses is when for example a consultant incurs his/her own travel/hotel/meal expense, and is getting reimbursed for these services that he consumed/initiated etc.
In your case they are not "your" expenses, you are just the money distributor. You should consult the gross vs. net guidance in EITF 99-19.

Here is a good summary:

Ron Rubel
Title: Controller
Company: Technical Innovation
(Controller, Technical Innovation) |

I agree with Doug. The company I am with was in the Property Owner Industry. We had a separate GL AR account for tracking the AR by Customers (Sub-Ledger for each of the Property Owners) due to the timing difference (Getting the reimbursement for utilities we paid on their behalf). We recorded all the amounts paid as debits into the “customers / Property Owners” Sub-ledger and the cash received as credits into their ledgers. This kept the amounts paid and received out of the Income Statement and therefore out of Revenue in accourdance with EITF 99-19.
These amounts are not your income or expenses as thier is no mark-up.
If there was a mark-up, only the mark-up amount should be recognized as Revenue.

Carla Holder
Title: Manager, Finance & Purchasing
Company: Mosaica Education, Inc.
(Manager, Finance & Purchasing, Mosaica Education, Inc.) |

An Education Management Services provider (for instance, charter school management firm) does have to show the managed schools' expenses as corporate revenue plus management fee to roll up into total revenue from those schools. Then school expenses net as cost of sales. Details are in a RevProc, the number of which I don't remember off the top of my head. How you treat revenue depends on your industry.

(Chief Financial Officer) |

Thanks Carla! Thats just the type of analogy I was looking for. Our model is very similar to a Education Management Service provider. I had assumed we would count these as Revenue.

My only question now is whether we have the right to record as Revenue the pass through amounts that our customer is legally liable for, such as a lease. The lease is in their name, but as we are managing the facility,we will be paying the lease payment, and getting reimbursed.

Carla Holder
Title: Manager, Finance & Purchasing
Company: Mosaica Education, Inc.
(Manager, Finance & Purchasing, Mosaica Education, Inc.) |

You have to check what official rulings have been made for your industry. For our industry, we do count all expenses including lease payments to either us or to third parties. Then things get netted appropriately.

(Chief Financial Officer) |


To clarify: you as the management company would count the reimbursement of a lease expense from your customer as revenue?

Where would i find the rulings by industry?

Carla Holder
Title: Manager, Finance & Purchasing
Company: Mosaica Education, Inc.
(Manager, Finance & Purchasing, Mosaica Education, Inc.) |

Total School Expenses were counted as revenue. Google Rev Proc and you will see a string of IRS references; you'll have to dig for yours.


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