Record deferred revenue and monthly revenue recognition for a prepaid subscription.
A customer pays $120,000 upfront on January 1 for twelve months of support service. Recognize revenue as the support performance obligation is satisfied over time. Booking all upfront cash as revenue immediately overstates January revenue and hides the remaining service obligation. Identify the obligation The company owes twelve months of stand-ready support after cash is received. The obligation is why the credit goes to deferred revenue first, not revenue. Record cash receipt Dr. Cash $120,000; Cr. Deferred revenue $120,000. The balance sheet now shows both the resource received and the service still owed. Release monthly $120,000 / 12 months =…
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