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Discussion:2 year contracts

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Discussion Forum Index --> Basic Tax Questions --> 2 year contracts


Discussion Forum Index --> Tax Questions --> 2 year contracts

Nshnider (talk|edits) said:

28 February 2014
I have a technology company that has 2-year contracts with their customers. No cash changes hands at this time. If I book those as assets and equity on the balance sheet, each month when the contracts are fulfilled I would credit the asset, Dr cash but how would I get it into income? would I CR income and DR equity?

any comments are welcome

Nshnider (talk|edits) said:

28 February 2014
entries assumed????

Dr Asset
Cr Equity
Cr Asset each month
Dr Equity each month
Dr Cash each month as paid
CR Income each month as paid

Kevinh5 (talk|edits) said:

28 February 2014
What is the offsetting entry when you initially set up the contract as an asset?

I must say, I don't follow all this GAAP stuff, I tend to understand tax accounting much better. For one, I don't get how an unearned amount is ever an asset.

Ckenefick (talk|edits) said:

28 February 2014
I think GAAP (accrual accounting) would say that the signing of a contract is a big nothing, since nothing's been earned, despite what many entities tried to do (i.e. treat the contract signing as an event giving rise to Income).

Kevinh5 (talk|edits) said:

28 February 2014
Is this what Enron did?

Ckenefick (talk|edits) said:

28 February 2014
I don't think so, but I could be wrong. My recollection is that Enron involved itself with some off-balance sheet financing with entities it controlled, but didn't require consolidation...and this led to FIN 46, regarding Variable Interest Entities.

http://en.wikipedia.org/wiki/FIN_46

But, if Neil would like to play around. Let's say 2-year contract is $240k and gets involved upon signing. I suppose you'd debit A/R (but in light of K5's point about how can it be an asset if not earned) and credit Unearned Revenue. At the end of Month #1, we've earned say $10k.

We'd debit Unearned $10k and credit income $10k.

When customer pays, we debit cash $10k and credit A/R $10k.

Note that if a customer prepays, for GAAP, we'd obviously have to book the cash rec'd to Cash, which is an asset. Yes, that cash hasn't been earned yet, but I don't know where else we'd put it. In addition, it really is the Company's cash, so asset treatment would be proper.

Captcook (talk|edits) said:

28 February 2014
What kind of contracts are these? Is it just a service contract or is it a construction-type contract? Are they fixed price, time & materials, cost-plus? I don't see how an earning process has been completed when a contract is signed. I agree with Chris: signing is a big nothing.

Tax Writer (talk|edits) said:

1 March 2014
I also agree... unearned revenue is a liability, not an asset, right? Let me think back to my Accounting 1A-1B class. The example we always heard was about concert tickets-- a vendor signs a contract with an artist, sells 10,000 tickets for a concert, the revenue is a liability until the concert is actually performed (until the contract has been perfected). If the singer backs out, the vendor must return the funds to the customer, hence the liability. So the revenue stays a liability on the balance sheet until then. This is just basic stuff... don't know if the rules have changed in the last 15 years.

Been a long time...

Spell Czech (talk|edits) said:

1 March 2014
The credit entry that Neil says he is making to "equity" for the unearned income is, indeed, a credit to unearned income, but I believe that this unearned income account would be a "contra-asset" account rather than an equity account. That's what I learned in an accounting class in a previous millennium. The determination of what's earned is completely out of the picture at this point. We're actually only *bookkeeping* for the receivable and the cash.

Nilodop (talk|edits) said:

1 March 2014
Back in this discussion Discussion:Debit: Prepaid Expense -- Credit: Accrued Expense ??, I learned that not every "transaction" gets recorded, at least not in GAAP. In the OP's facts, I can't tell whether the contract is able to be canceled w/o penalty. Nor what accounting method the client uses. But, since this is a tax question, not accounting, the real question is how much income to record, and when.

As to Spell's "contra-asset", I have no idea, but if the unearned revenue gets recorded at all, I think it goes on the right-hand side; some call it the credit side.

Captcook (talk|edits) said:

1 March 2014
The determination of what's earned is completely out of the picture at this point.

I disagree. There's been no receipt of cash in the OP.

Nilodop (talk|edits) said:

1 March 2014
We still do not know what accounting method is used by taxpayer, whether contracts are for service or construction (asked above by Captcook), or whether the income from the contracts is earned simply by passage of time or by performing some activity. The OP's main question has to do with when and how much and how to get the income into income. Receipt of cash may or may not be determinant. Simple example: tax preparer agrees by contract to prepare returns for two years for $20,000 total. Preparer is on cash method. Cash receipts matter. Second example: Engineering company on accrual method agrees by contract to perform certain complex engineering services. Gets cash deposit and periodic payments that may or may not correlate with performance of the engineering services. Need more facts.

Spell Czech (talk|edits) said:

1 March 2014
Is there some connection between what revenue's been earned on these contracts and the amounts that have been or will be paid against the accounts receivable? I haven't seen any, so far...

Neil does mention that the contracts get fulfilled each month but then he seems to say that's when the cash comes in. Examples are good, Nelly, but maybe there's some real accounting to be done, if we had the facts of the case, the taxpayer's accounting method, the recognition scheme, etc., etc.

I got to read your post after the fact, Lenny, and your "...periodic payments that may or may not correlate with performance of the engineering services..." is right on target.

Nshnider (talk|edits) said:

1 March 2014
thanks for all your comments. These are service agreements not construction contracts. Customer signs a 2 yr 24K service agreement. This i assume becomes an asset and a liability (unearned income) When company performs the work each month and pulls the money they then Dr Cash, Cr income and will then Cr the asset and Dr the unearned revenue. This is for financial accounting. The client is on a cash tax basis but runs its B/S on accrual so the deferrals show up.

The purpose is to show the financial institutions the value of the service contracts on the B/S. I realize it does not increase equity

Spell Czech (talk|edits) said:

1 March 2014
Is there something that guarantees that the customer's money will be paid each month as the [proportional???] amount of work has been done? Neil, you seem to have equated the passage of time with the performance on the contract with the payment of the fees. Isn't there some *bookkeeping* involved here? Like daily cash journals, account receivable ledgers, invoices, job tickets, time sheets?

Ckenefick (talk|edits) said:

1 March 2014
I would say that when a customer pays a receivable, you'd debit Cash and credit the Receivable.

I would also say that at that point, and perhaps prior to that point, we'd have a debit to Unearned and a credit to Earned.

I mean, what if 6-months of work is done and customer hasn't paid?

The income is driven off of the Unearned amount, not off of the cash collected, for financial accounting purposes.

So, every month, we should have 1/24th of the Unearned amount being moved to Earned - regardless of whether or not the customer pays.

And, I am just playing along.

Nilodop (talk|edits) said:

1 March 2014
Same bottom line answer I'd get, but I'd Dr Cash, Cr Receivable and Dr Unearned Revenue and Cr Income. But that's on the books. The tax return will just be Dr Cash, Cr Income, as received. Posted just after Ck post and before I saw Ck post.

Nshnider (talk|edits) said:

1 March 2014
customer pays each month because client pulls the money each month via ACH or credit card and collects at the beginning of the month. So there are no A/R to speak of. So yes they are guaranteed

Captcook (talk|edits) said:

1 March 2014
I'm going to go ahead and assert your agreement is a fixed fee arrangment to perform and bill for services...monthly, for two years.

Each month, when service is performed, income is earned. Each month, a bill is sent, receivable/revenue is recorded. Simultaneously, A/R converts to cash.

For example, when I enter into an agreement to perform a tax return, I don't record an asset. I have to perform the services before I can do that.

Man, this got a lot more complicated than it should be.

Ckenefick (talk|edits) said:

1 March 2014
For example, when I enter into an agreement to perform a tax return, I don't record an asset. I have to perform the services before I can do that.

That's kind of why I'm just playing along with Neil. If he wants to believe that signing a contract is some big event for financial accounting purposes, then he can believe it. I hope his reporting doesn't mislead the user the of the financial statements.

So there are no A/R to speak of. So yes they are guaranteed

What if this was a 20-year contract? Book up 20-years' worth of Receivables? And, a Receivable isn't necessarily a piece of paper invoice. For financial accounting purposes, a Receivable gets booked up regardless of whether or not a physical invoice is sent out. To say that 1-month's of work is done, the client owes the money, then the customer pays the money, while at the same time saying "There are no A/R to speak of," is patently improper. Surely, the customer is paying a payable and your client is collecting on a receivable. Income is recognized when earned and when it is earned, we have a receivable. Don't confuse "invoice" with "receivable." And yes, the might be a momentary timing different with the Receivable coming into being and the related payment being deposited, but there must be a receivable at some point in time. If there's not, what then, is the customer paying? And, I highly doubt that all of this is guaranteed. It never is. Client could cut off the ACH at any moment in time.

Nilodop (talk|edits) said:

1 March 2014
The unearned revenue account would really only come into play if cash is received in advance of future services to be rendered. But we have given OP the bookkeeping he wanted, in view of the financial statement treatment he wants, that Ck hopes will not mislead creditors.

OP could show what he wants (value of service contracts) in a footnote.

Ckenefick (talk|edits) said:

2 March 2014
I will say that I've done some accounting in the vein that Neil describes. Accrual basis and for tax purposes. Client has a customer that wants to use up $x of customer's budget prior to year-end, so customer says, "Send me an invoice for $x." Yes, we could keep it off the books, but I see no harm in booking it up on the tax return if it will help the client keep track of the job.

Southparkcpa (talk|edits) said:

2 March 2014
Recording an asset upon the signing of a contract is negligent and would not pass any GAAP or tax accounting.

It's that simple...

Ckenefick (talk|edits) said:

2 March 2014
It would be a big nothing for tax purposes because an Income account isn't being hit.

But doing it for financial reporting purposes, where the aim is conservatism and we want to understate assets, could be misleading.

Southparkcpa (talk|edits) said:

2 March 2014
No big deal? In 40 years most of us will be dead so what is a big deal is subjective LOL. I was trained in a BIG 4 firm where the goal was GET THE GAAP right. They drilled it in your head. Know EVERY asset on the books and every liability. How are they there, what removes them, whats the true value.

This has little to do with conservatism. It is more business law. The signing of a contract does not create a recordable asset.

You cant apply tax law or auditing principles to accounting that isn't correct. I would be very concerned about any accountant that would book this asset. It is so blatantly wrong, I would wonder what else is wrong. Thats my story, im sticking to it.

I love these so called accountants that import QBs into their tax program with little review. Ive seen negative AR, negative cash, assets called "due to Billy" etc all on tax returns of so called accountants and CPA's. All sloppy work. Thats what this would be in my view.

Ckenefick (talk|edits) said:

2 March 2014
I can't disagree. I think - but you'll have to check me on this - the recent stuff in the News, I believe, was that many entities were booking Revenue upon the signing of contracts, which of course overstated earnings.

Now, we also need to consider a customer that prepays. Consider that situation when nothing was booked at contract signing. Well, we have to book the receipt of the Cash somewhere, right? Otherwise, we can't balance the bank account. So, we basically have an asset on the books when performance under the contract hasn't occurred. (And it might be that the customer will not pay until the customer gets an invoice). That fact, plus the fact that an accrual basis taxpayer might actually pre-bill, just to comply with a customer's request, and might want the A/R on its books to more readily track the project (as opposed to tracking it somewhere separately (like in Excel), leads me to believe that throwing it on Schedule L isn't a big deal.

It is proper tax accounting? Not really. But what will be the P&L result of an IRS adjustment - nothing.

A few times, I mentioned I'm just playing along with Neil's accounting here. And, I said that because Neil proposes to issue an actual financial statement to a lender with this type of accounting...which may very well be misleading.

Kevinh5 (talk|edits) said:

2 March 2014
I would suggest that if the CPAs here have never learned how to do this in all of their education and testing, then it is probably NOT GAAP, and therefore probably improper.

Ckenefick (talk|edits) said:

2 March 2014
Well, we might not have been paying attention in class that day:

"Mr. Kenefick, what is the answer to Revenue Recognition Question Number 10?"

"I'm sorry, sir. I was not paying attention. I was secretly reading the Internal Revenue Code on my I-phone, which is far more interesting than the accounting stuff you are presently teaching..."

Nilodop (talk|edits) said:

2 March 2014
OK, those of us on this board pretty clearly know the tax accounting involved here, and it has to do with a bunch of rules about cash method, accrual method, long-term contact accounting, deferral of income, and more. Southparkcpa is pretty emphatic in his comments ("sloppy", "blatantly wrong", "very concerned about any accountant"). K5's not too complimentary either. So let me dive in and "embaras" myself so as to throw Ck into "ectasy". I am only addressing financial statement accounting.

Assume I sell 2-year service contracts on appliances or computers, not considered insurance under state laws. Also assume my statements are used by investors and creditors.

Situation 1 - I get signed contracts, payments required monthly in advance (i.e., by the 1st of each month). Customers have the right to cancel any time.

Situation 2 - I get the same signed contracts, but offer customers a small discount for full advance payment, and many take me up on that offer, mainly for the convenience of not sending monthly payments.

Situation 3 - Change the contracts in 1 and 2 such that they cannot be canceled by customer except under very limited circumstances (disposition of appliance, for example).

In each case, as a service provider, I need employees and trucks and tools and other overhead, all of which I buy/hire, so that it might look odd, especially in the early years, that I have a lot of assets and overhead but little revenue.

What is the accounting (again, book, not tax) in 1, 2 and 3?

Spell Czech (talk|edits) said:

2 March 2014
It's not GAAP and it's not tax accounting, it's *bookkeeping* - a lot of the folks who write in this forum seem to forget that there's a heap-load of work that goes on in *bookkeeping* that doesn't march to the GAAP and GAAS and IRC accounting rules. When you dial up the "accounting department" and ask how many months of the Smithson contract are still unpaid, you expect them to know things that aren't GAAP and aren't cash basis and aren't even - maybe - in your vernacular. To say that something *doesn't get recorded* because it's not GAAP shows a certain unworldliness and lack of appreciation for an entire universe of bookkeeping that goes on, day and night, using perhaps no "generally accepted" rules at all. Except maybe "debits by the window, credits by the door." No, not even that. They don't use the terms "debit" and "credit" in that world. Has anyone else ever been there?

Ckenefick (talk|edits) said:

2 March 2014
It's not GAAP and it's not tax accounting, it's *bookkeeping*

Exactly. Very well said.

And, what do the Schedule L Form Instructions say about presenting Schedule L?

Spell Czech (talk|edits) said:

2 March 2014
Real-world rules for Schedule L: "Try to end up with something that balances, and that you can track back to in your records. Failing that, plug the equity section."

Southparkcpa (talk|edits) said:

2 March 2014
I have said my peace...however, if a pre-pay is involved, then the story changes. The OP stated NO CASH changes hands. I stand on my statement that no entry is made at contract signing.

In memory..what happened with Enron was Equity method accounting gone wild. A 1 percent GP had no obligation to record a liability for the investment even though the GP was, even at 1 percent, responsible for the liability. Thus we had tremendous "off the books" liability and we were in compliance with GAAP. FASB then created variable interest accounting to seemingly solve this.

To the point that something is recorded and shouldn't be is "worldly". I simply have no response. I would try to teach my clients the right way to do it if possible, sometimes its not possible. I have plenty of clients with incorrect books via GAAP and I leave it alone as it has no tax affect.

Kevinh5 (talk|edits) said:

2 March 2014
ah, but here Neil is making the journal entries himself.

Nilodop (talk|edits) said:

2 March 2014
I have said my peace and no doubt you are willing to keep the piece.

Spell Czech (talk|edits) said:

2 March 2014
But if theres no tax affect, maybe its not going to effect our clientses' book's.

Ckenefick (talk|edits) said:

2 March 2014
ah, but here Neil is making the journal entries himself.

Yes indeed..."Here lender, look at all those contracts we have! (And as an aside, to myself, Neil, I say, I will *not* be booking up the estimated cost of performance, based on implied contracts our business has with all those employees who will be working on those contracts."

Ckenefick (talk|edits) said:

2 March 2014
ah, but here Neil is making the journal entries himself.

...to Equity...

Southparkcpa (talk|edits) said:

2 March 2014
I'm gonna advise my construction clients to record the full contract as an asset and credit equity upon signature. I'm sure when the bonding company sees this thread, they will find it worldly ... Who needs backlog analysis when I can simply record it immediately.

Nilodop (talk|edits) said:

2 March 2014
But Ck will insist that you also record cost of performance.

Nilodop (talk|edits) said:

2 March 2014
I once had a large public-company client whose CEO/founder/principal owner was, shall we say, a bit unusual. For example, he once got on the PA system and announced to the entire office and plant that all accountants are (stupid, dumb, idiots, or some such word). What set him off? The fact that the first line on the income statement was "sales". He had it changed to "shipments".

Oh, I forgot. He also kept his humongous German Shepherd dog by his side all day at his office.

Poor guy was killed by a motorcycle in Europe while he was on a business trip.

Southparkcpa (talk|edits) said:

3 March 2014
Having been a CPA for 30 years.... There is some credibility to his statement. Lol.

Ckenefick (talk|edits) said:

3 March 2014
That's a sad story, Lenny. I hope that after he passed on, you changed it back to "Sales."

What if the lender, in Neil's case, asks for an A/R Aging? Where, on the Aging, does an invoiced amount appear that is not yet due? Under the "current" classification?

Captcook (talk|edits) said:

3 March 2014
It would be under the "future" column, of course.

Nshnider (talk|edits) said:

3 March 2014
how do companies like Verizon and ATT that have long term contracts (2 years)account for them on their balance sheet? I assume as an intangible asset to be amortized

They would then show it as a long term liability???

Nilodop (talk|edits) said:

3 March 2014
Please re-read the above answers, or look at their published financial statements.

Ckenefick (talk|edits) said:

3 March 2014
I assume as an intangible asset to be amortized They would then show it as a long term liability???

Lenny is being nice by saying "please."

Nilodop (talk|edits) said:

3 March 2014
Since I am retired and, therefore, know no tax season, here are some extracts from Verizon's 2012 annual report. I trust this will adequately cover your questions.

This one is in the Revenue Recognition footnote: "Multiple Deliverable Arrangements In both our Verizon Wireless and Wireline segments, we offer products and services to our customers through bundled arrangements. These arrangements involve multiple deliverables which may include products, services, or a combination of products and services. On January 1, 2011, we prospectively adopted the accounting standard updates regarding revenue recognition for multiple deliverable arrange- ments, and arrangements that include software elements. These updates require us to allocate revenue in an arrangement using its best estimate of selling price if neither vendor specific objective evidence (VSOE) nor third party evidence (TPE) of selling price exists. Verizon Wireless Our Verizon Wireless segment earns revenue primarily by providing access to and usage of its network. In general, access revenue is billed one month in advance and recognized when earned. Usage revenue is generally billed in arrears and recognized when service is rendered. Equipment sales revenue associated with the sale of wireless handsets and accessories is recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earn- ings process from providing wireless services. For agreements involving the resale of third-party services in which we are considered the primary obligor in the arrangements, we record the revenue gross at the time of the sale. For equipment sales, we currently subsidize the cost of wire- less devices. The amount of this subsidy is generally contingent on the arrangement and terms selected by the customer. The equipment rev- enue is recognized up to the amount collected when the wireless device is sold. Wireline Our Wireline segment earns revenue based upon usage of its network and facilities and contract fees. In general, fixed monthly fees for voice, video, data and certain other services are billed one month in advance and recognized when earned. Revenue from services that are not fixed in amount and are based on usage is generally billed in arrears and recog- nized when service is rendered. We sell each of the services offered in bundled arrangements (i.e., voice, video and data), as well as separately; therefore each product or service has a standalone selling price. For these arrangements revenue is allo- cated to each deliverable using a relative selling price method. Under this method, arrangement consideration is allocated to each separate deliver- able based on our standalone selling price for each product or service. These services include FiOS services, individually or in bundles, and High Speed Internet."

This one is in the Commitments and Contingencies footnote: "We have several commitments primarily to purchase handsets and peripherals, equipment, software, programming and network services, and marketing activities, which will be used or sold in the ordinary course of business, from a variety of suppliers totaling $41.8 billion. Of this total amount, $29.6 billion is attributable to 2013, $7.5 billion is attributable to 2014 through 2015, $4.2 billion is attributable to 2016 through 2017 and $0.5 billion is attributable to years thereafter. These amounts do not rep- resent our entire anticipated purchases in the future, but represent only those items that are the subject of contractual obligations. Our commit- ments are generally determined based on the noncancelable quantities or termination amounts. Purchases against our commitments for 2012 totaled approximately $16 billion. Since the commitments to purchase programming services from television networks and broadcast stations have no minimum volume requirement, we estimated our obligation based on number of subscribers at December 31, 2012, and applicable rates stipulated in the contracts in effect at that time. We also purchase products and services as needed with no firm commitment."

Ckenefick (talk|edits) said:

3 March 2014
But it doesn't say that they do or don't book the entire contract up to the Balance Sheet (debit and credit) @ contract inception...

Nshnider (talk|edits) said:

3 March 2014
Correct I see not reference to billing the 2 year contract as an asset and a unearned liability. So where is this information provided

Nshnider (talk|edits) said:

3 March 2014
I have looked at their financials and do not see a reference to the listing of their 2 year contracts that customers commit to

Kevinh5 (talk|edits) said:

3 March 2014
Neil, Verizon recognizes the income one month at a time, as it is earned. Re-read your own post.

In the tax world, this is known as the 'All Events Test'.

Nshnider (talk|edits) said:

3 March 2014
I realize that they recognize it as earned, but do they put it on the balance sheet as an intangible asset and an unearned revenue

I have been on their B/S and do not see it even in the notes

Ckenefick (talk|edits) said:

3 March 2014
Neil, did you see any self-created Goodwill on Verizon's Balance Sheet? What about "workforce in place" or leases involving favorable lease terms, or favorable supplier-based contracts? Surely, these things are valuable, but do they show up?

Nshnider (talk|edits) said:

3 March 2014
yes they do show goodwill, leases supplier contracts all under longterm obligations

Ckenefick (talk|edits) said:

3 March 2014
But what about the assets associated with those liabilities? And, I'm sure that whatever Goodwill is showing wasn't *self-created,* but was booked up because it was purchased. And, I believe Pooling of Interests went by the wayside some years ago...

Nshnider (talk|edits) said:

4 March 2014
Ok so let's say it differently. How do insurance companies report future revenue on their financials. i.e. I buy a life insurance policy for 5K/year. How do they show their contractual future revenue and their liability

Ckenefick (talk|edits) said:

4 March 2014
Ok, let's say it the same way: They don't.

Nshnider (talk|edits) said:

4 March 2014
nationwide insurance shows as an Asset "premiums in course of collection"

liability "undearned premium

Ckenefick (talk|edits) said:

4 March 2014
Ok, now we're gonna liken your little IT Company to a major Insurance Company?

I suspect the accounting *might* be just a little different, wouldn't you say?

What everyone is telling you here is that when an accrual method client signs a contract, it is a big nothing. Maybe pay a visit to the accounting department at your local college...

Kevinh5 (talk|edits) said:

4 March 2014
Neil, if you pay for a one year premium on your insurance company, but die the first day, the insurance company must pay back 364 days worth of insurance premium. It is earned one day at a time, and must be refunded if death occurs early. The liability is the balance of premium collected, but not yet earned.

That's not the same as saying "oh he's going to pay $500 a year until his actuarial death age of 82.3 years, so that's 41.7 years x $500 we had better book on this whole life policy he just signed up for."

I don't think you know how insurance works.

Captcook (talk|edits) said:

4 March 2014
That 'dearned premium again? Why I just went and undearned it yesterday!!

Southparkcpa (talk|edits) said:

4 March 2014
Google the definition of "premiums in course of collection". It is not really unrelated to this discussion and is a heavily regulated revenue policy.

Ckenefick (talk|edits) said:

4 March 2014
Insurance policies involve renewals. And you typical prepay for future coverage, like rent. You can cancel the policy at any time by not paying a premium. And I fully suspect that when a premium comes due on 1/1/Year1 for Year1 coverage, and it goes unpaid, the Insurance Company will logically not want to pay your claim for an incident that occurs after 1/1, give or take 15 or 30 days to ante up payment, or whatever the applicable law says. Yet Neil seems to think we add up all amounts under his client's IT contract, that are due over the life of the contract, and book it to the Balance Sheet (of course, he makes no mention of present value concerns, or an allowance for bad debts).

Maybe Neil should do it his way, disclose his client's Receivable policy in a footnote, book a certain portion of the Receivable as Long Term, and then explain himself to the banker when the banker calls and says, "WTF. WTF are you doing here?"

Nilodop (talk|edits) said:

4 March 2014
Insurance companies are heavily regulated and their accounting is statutorily determined. Also, they have reserves. Choose a different industry.

Southparkcpa (talk|edits) said:

4 March 2014
Len...

Cant seem to find an industry that allows recording an asset on signature of a contract.

This has been an interesting thread. Good discussion.

Nshnider (talk|edits) said:

5 March 2014
thanks for all your comments-I still don't have the answer of what the cell phone companies do with their 2 year contracts? do they not book them as a receivable? do they show them anywhere? I have searched their balance sheets and don't see anywhere they are booked. Am I missing something?

Ckenefick (talk|edits) said:

5 March 2014
Go back to bed Neil.

Nilodop (talk|edits) said:

6 March 2014
You said books are accrual. Book the receivable when it is earned, no sooner. It might be earned by the passage of time or the performance of services. No unearned income to book. When you book the receivable, credit revenue or sales or income. When you collect it, reduce it by the amount you collect. Don't worry about Verizon. But if you must, then assume they don't book a receivable or unearned revenue when they sign up a customer for two years of service. If you read the footnotes carefully, they say that.

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