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Help !! Revenue Recognition

I need help on understanding how RR works in this situation.

Contract is for 3 months (Jan-05, Feb-05,Mar-05) plus an additional free month (Apr-05). Monthly fees of $300 per month. Start date is 05-JAN-05

Without the free month, The monthly fees gets recognized on this structure.

05-JAN-05 to 31-JAN-05 01-FEB-05 to 28-JAN-05 01-MAR-05 to 31-MAR-05

Now can you help me get the amounts and dates for the monthly fees revenue with the FREE MONTH(Apr-05).

Thanks a lot in advance and I will eagerly waiting to get your opinion and input.

Reply to
Jason Rich
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"Jason Rich" wrote

If you are on the cash basis of accounting, you are done. Nothing gets recorded for April, as that is what your revenue is.

Under an accrual method of accounting though, you probably should record $75 in revenues earned in each month.

The terminology in the contract might cause me to change my mind on the exact entries though.

Reply to
Paul A. Thomas

Thanks for responding, Paul.

It is accrual method of accounting here. What intrigued me to ask this question was the way Revenue being recognized here in a different way. I have the example and calcuation and let me just put those numbers here rightaway.

Assuming it is a simple contract with not much terminology, here is how it is...

Start Date : 02-NOV-04, DEC-04, JAN-05) Term : 3 months (NOV-04, DEC-04, JAN-05) Free Month : 1 month (FEB-05) Monthly Fee : $800

The way the revenue (monthly fee ) is recognized here is as shown below

Month Monthly Fee : Reevenue Recognized Nov-2004 $800 580 (rest deferred to Free Month) Dec-2004 $800 20(from Nov-04) + 580 600(rest to FM) Jan-05 $800 20(from Dec-04) +

580 = 600 (rest to FM)

Now, the free month Feb05

20 (from JAN-05)
  • 200
  • 200
+200

------

620

-----

I can see something wrong in there,, but cannot point out what the right one could be.

Please advice Thanks again Jason

Reply to
Jason Rich

On 1 Nov 2005 11:02:57 -0800, in alt.accounting "Jason Rich" wrote in :

It probably would have made more sense to recognize $600 in November, even though there was one day missing, since you don't seem to make it up later. If you are going to recognize on a daily basis (which doesn't really work since you have 119 days instead of 120), you could do your revenue recognition at $20.00 per day ($580, 620, 620, 560, 20 which would imply that the free month ends on March first. For one instance of $20, there is no reason to bother, just take the rest of it on February.)

Reply to
David Jensen

Think of it in terms of entries.

Nov. Cash (debit) 800 Revenue (credit) 600 Unearned Revenue (credit) 200

Dec. Cash (debit) 800 Revenue (credit) 600 Unearned Revenue (credit) 200

Jan. Cash (debit) 800 Revenue (credit) 600 Unearned Revenue (credit) 200

Feb. Unearned Revenue (debit) 600 Revenue (credit) 600

I wouldn't pro-rate November since the free month is February... not until March 2.

Reply to
Beverly

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