[Zai]

Why would you want to defer revenue?

[rgibson3rd]

Revenue is recorded when earned. It's a liability – deferred revenue until earned. If you sell an annual subscription for a website for $120…here are the entries:

Dr Cash 120

Cr Deferred Revenue 120

Monthly Entry to recognize revenue:

Dr Deferred Revenue 10

Cr Revenue 10

BEC (11/10) 77 (Bisk)
FAR 7/2 - 63 11/5 - 80 (Yeager - Fail, Becker - Pass)
Reg (08/11) - 78 (Yeager)
Aud - 11/29 - 78(Yeager)

[Isaac]

To match your revenue with your expenses. Deferred means you actually have the money. Let's say you are a manufacturer and you are making desks for a school and it will take 2 years to finish all the desks. If the customer pays you in advance for all the desks they have ordered, you wouldn't want to put all that Revenue on your January financials and then February through the next December, put zero in the revenue column. That would be misleading. You are earning that revenue (that is already in your bank) a little bit at a time (monthly, as in this example). So, a little bit at a time, you put that revenue in your financials. Hope that helps.

FAR...80...Yaeger...Nov/2011
AUD...Exam...Oct/2012
REG
BEC

[Zai]

Great answers 🙂 I should've stressed “WANT” part of my question

Im actually looking for a reason(s) why deferring revenue might be better than recognizing it currently.

Lets say its the year end… I have 2 customers who want to buy the desk from me.. same terms, same price the only difference one will buy it Dec 31 and the other one Jan 1 (assuming Dec 31 fiscal year end)

Why I might prefer to sell it on Jan 1?

[NolaCpa2Be]

You may want to defer revenue for tax purposes

[jelly]

You defer it b/c you might not have earned it yet. Classic example is airline tickets. Passenger buys ticket in October for December flight. Can't recognize the revenue until the passenger is in the aircraft, and flying in the air.

Couldn't pass again!

[hhiccd]

You may also want to defer revenue to another period if you have already met earning expectations for a current period and have concerns that a future period is going to be soft. Of course just because you want to defer revenue doesn't mean that you can.

BEC 11/2009 87
AUD 10/2010 75
REG 11/2010 73, 2/2011 80
FAR 02/2011 85
Licensed FL CPA as of 10/5/2011 Yay!!!

[yankeeaccountant]

@zai

I agree with everybody here: you haven't earned it yet, tax purposes, just because you want to–you might not be able to. Outside of the tax return, the other thing I would add is that if your company files its' financial statements according to GAAP. Even though we are taught GAAP in our accounting classes, in reality, alot of entities do not follow GAAP in preparing their own financial statements. Some entities may use an alternative method for their statements: i.e cash or income tax basis, or a modified income tax basis.

[jenuno01]

the only reason I can think a business would WANT to defer revenue is to reduce their net income and thus pay less taxes? 😉

Class of 2012

[Yvonne570]

When you receive funds in advance, you hold out on recognizing revenue until the period it is earned. For example, you received the cash for car wash service next month. You are holding the funds until next month to record the recognition of the service as earned.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[Author]

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