Betsy Barefoot, The Chronicle of Higher Education Deferred Revenue Betsy Barefoot, The Chronicle of Higher Education

What is Deferred Revenue? Revenue that has not yet been earned Creates a liability on the balance sheet to provide a product or service Kept in a separate GL Account until the products or services are provided Moved from the Deferred Account to the Revenue Account once the revenue is earned

Why defer revenue? For best accounting practice (General Accepted Accounting Principle), revenue and expenses should be recorded in the same month or period to accurately reflect profit. This is referred to as the matching principle in Accounting. Since the services will be provided in the future months, the costs (expenses) will be incurred in future months as well. So for best accounting practice, revenue are deferred and should be booked as the same time as the expenses. Also, deferred revenue balance allows us to show the amount of services we still owe to the customers and should be recorded as liability in our books. If are unable to fulfill the services to the customers for any reason, we know the amount to refund.

Deferred Revenue at The Chronicle We sell annual subscriptions to our online content (“Site Licenses”), to organizations. Payments are in advance for the entire year. Revenue goes into the Deferred Account and is 1/12 of it is moved monthly into the Site License Revenue Account. We invoice Recruitment ads upon first insertion. Revenue for future boxed ad insertions is deferred and moved to the revenue account once the insertion date has passed. We sell unlimited Web Packages (online job postings). Payment is in advance for the term(typically one year). Revenue goes into the GL Account and moved to the Revenue Account monthly, as earned.

How is Deferred Revenue Handled Today? Through (scary) spreadsheets and manual adjustments to the GL. Site Licenses sales are handled in Salesforce without an Accounting process. We are just about to install a billing and renewing package in Salesforce, which includes ability to handle deferred revenue. This will replace the Site License deferred revenue spreadsheet and manual adjustments to GL. We’re in the process of configuring 2014-1 to move from 2.26 and will evaluate whether we can use Adbase Deferred Revenue functionality for our advertising use cases.

Deferred Revenue in Adbase Revenue invoiced for dates in the future goes into the Deferred Revenue Account Invoice Generator moves the revenue from the Deferred Account to the Actual Revenue account once the insertion date has passed There are no configuration settings available.

Deferred Revenue in Adbase (con’t) Backend setup to: Finance Manager (set up Deferred Revenue Account and add it as the default Deferred Revenue Account to appropriate Charge Maps) Ad Rater (map Charge Map) System Admin (create Deferred Billing Rule; update Settings to show deferred revenue in Adbooker price explosion) Product Define (update Ad Type Template to use Deferred Billing Rule) OR use AdRater to select Deferred Billing Rule on a rate OR use Adbooker to select Deferred Billing Rule on specific order Processing Deferred Revenue Run Invoice Generator to move Deferred Revenue to appropriate revenue account, once insertion date has passed Run Report Tool to populate GL tables for reporting Run GL Report to see GL totals

Chronicle Example - Recruitment Boxed Ad Order has 2 print insertions, March 13 and April 3, along with an online ad. Entire order was invoiced on March 5 with that as the transaction date. Upon invoicing, revenue for the March 13 and April 3 insertions go into the Deferred Revenue Account. After the March 13 date has passed, the revenue for that date moves into the Boxed Ad Revenue Account. After the April 3 date has passed, the revenue for that date moves into the Boxed Ad Revenue Account.

Discussion Points Which sites are deferring revenue today, whether inside or outside of Adbase? Which sites are using Adbase functionality to process deferred revenue or planning to use it in the future? Which sites have looked at Adbase deferred revenue and decided not to use it? Why not?