Companies with Contracted Revenue? - Help
I am looking at a company that operates via contracted business model. Contracts are two to three years with customers and they are billed at the beginning of the month for services to take place that month. However, this company has ZERO deferred revenue. How is this possible? Every contract business I have ever seen has deferred revenue since they are billing customers before providing the service / product. Does anyone know why this could be so?
Also - the company boasts about its new business wins but where does that get booked? If a company signs a contract for, say $10mm in annualized revenue from the contract, does that $10mm get booked immediately as revenue? Once a contract is signed this business does not start providing services for a few months. Do companies like this recognize all of that revenue at once? If not where is it being booked on the financial statements?
Not sure why I cant wrap my head around this but if you book a $10mm contract in June, you will only recognize half of that revenue for the year. So should the other $5mm be in deferred revenue or in some other account as that is contracted / bound revenue that the company has to receive at some point in time?
Where is the company incorporated / based. US GAAP, IFRS or what?
Certain accounting standards allow you to book revenues when the contract is signed and has reasonable expectation of completion.
You said that they get billed at the beginning of the month for services that are going to take place that month. So the only way you'll get a deferred revenue liability is if you're looking at a company at a point in time in the middle of a month. Deferred revenue liabilities can't accrue otherwise.
Gotcha, but what about if a $10mm contract is signed (for one year) and two months of paid services have past. Shouldn't the remaining 10 months of work that has yet to be completed / paid be booked as deferred revenue as well?
Qui nemo sint ad est. Eius voluptatibus exercitationem doloremque magnam iure qui sunt. Est totam occaecati voluptatem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...