1. Presented by Frank Leonard March 29, 2007 Deferred Revenue Account Analysis Schedule S-9 1

2. Objectives  To provide departments the opportunity to validate the data in deferred revenue accounts prior to external auditor’s review  To avoid unnecessary audit findings – New Statement on Auditing Standards 112 focusing on internal controls  To ensure proper representation of financial data Deferred Revenue Account Analysis Schedule S-9 2

3. Review of Last Year’s S-9 Participating departments had deferred revenue accounts cleaned up by year-end. THANK YOU Year-end adjustments reflected the new 3 month recognition standard. Deferred Revenue Account Analysis Schedule S-9 3 Objectives Met: Not all departments participated. More information needed in the Deferred Revenue Source field. Information in this same format needed for year-end… Introducing the new “S-12”(form will be available at YE) Objectives NOT Met:

4. Deferred Revenue 4 Deferred revenue arises when a potential revenue transaction does not meet both the “measurable” and “available” criteria for recognition in the current period. Deferred Revenue Account Analysis Schedule S-9

5. Criteria for Revenue Recognition 5 Under Accrual Basis of Accounting Under Accrual Basis of Accounting (For Proprietary Funds only - Internal Service Funds, Enterprise Funds) : Deferred Revenue Account Analysis Schedule S-9  Revenue must be earned (measurable) before it can be recognized. However, cash does not have to be received (available) before revenue is recognized.

6.  Revenue must be earned (measurable) and available. This means it must be earned and cash must be received within 3 months or 12 months if expenditure- driven grant. The revenue must also be eligible to recognize revenue. Under Modified Accrual Basis of Accounting Under Modified Accrual Basis of Accounting (For Governmental Funds only - General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds) : Criteria for Revenue Recognition Deferred Revenue Account Analysis Schedule S-9 6

7. Eligibility requirements:  Allowable cost restrictions (Expenditure-driven / Reimbursements)  Time restrictions (Advances)  Contingencies  Required characteristics of recipient Criteria for Revenue Recognition Deferred Revenue Account Analysis Schedule S-9 Eligible or Eligibility The characteristic that must exist for a given entity to be considered qualified or allowed to take legal ownership of the money received for a particular program. 7  NOTE: Purpose restrictions cannot be used to establish eligibility.

8. A. Proceeds Received in Advance of Revenue Entitlement (Unearned) 1. To receive cash in advance of revenue recognition: AccountDebitCredit Cash (101100)$100 Deferred Revenue (230XXX) $100 2. To recognize revenue once the criteria has been met: AccountDebitCredit Deferred Revenue (230XXX)$100 Revenue (7XXXXX) $100 8 Deferred Revenue Account Analysis Schedule S-9 Accounting Treatment

9. B. Proceeds Received Subsequent to Revenue Entitlement (Unavailable) 1.Once revenue has been earned by a governmental fund, a receivable and offsetting deferred revenue should be entered. If these amounts remain at year-end, it is considered “Unavailable.” These amounts should be identified using Schedule S-12. AccountDebitCredit Receivable (11XXXX)$100 Deferred Revenue(230XXX) $100 (continued)… 9 Deferred Revenue Account Analysis Schedule S-9 Accounting Treatment

10. 2.Once proceeds are received, (available), the entry should be reversed and the revenue should be recognized. Delaying the recognition of revenue until cash is received is a modified accrual concept for use with governmental funds only. AccountDebitCredit Receivable (11XXXX) $100 Deferred Revenue(230XXX)$100 To reverse initial entry Cash (101100) $100 Revenue(7XXXXX) $100 To recognize revenue B. Proceeds Received Subsequent to Revenue Entitlement (Unavailable) Deferred Revenue Account Analysis Schedule S-9 Accounting Treatment 10

11. Questions?? Deferred Revenue Account Analysis Schedule S-9

12. ACO Contacts For questions regarding deferred revenue, please contact: Dolores Reyna at micro 5-9380 or Frank Leonard at micro 5-3877 12 Deferred Revenue Account Analysis Schedule S-9