If $10 of deferred revenue is written, what is the effect on the 3 financial statements? What are the journal entries?
I've combed this forum and Googled the treatment of deferred revenue write-downs and found a bunch of different answers. Anyone confidently know the answer?
| +137 | UBS Catastrophic Q1-Q3 26, M&A -17%, Outside Top 10 in Americas, EMEA & APAC | 37 | 1d |
| +59 | PWP acquisition by Piper cancelled | 22 | 1h |
| +29 | Evercore poaches Baird DC Defense Team | 18 | 6h |
| +28 | Houston banking Gods ? | 16 | 2d |
| +21 | Best Houston Banks for Culture in 2026 | 14 | 3h |
| +18 | Normal for lateral process to go +2 months? | 4 | 1d |
| +17 | Lack of talent in IB! | 19 | 1h |
| +17 | Internal lateral from coverage to M&A (focused on coverage) | 4 | 15h |
| +15 | How standard is weekend work in IBD? | 6 | 2d |
| +15 | Discussion Transaction Experience in Lateral Interviews | 3 | 3d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
How can you ever “write down” DR?
Lol that was my reaction but someone supposedly got this question in a MF PE interview. Apparently it can happen in M&A. This link explains it, but not how you account for it: http://mikesandrik.com/deferred-revenue-treatment-in-acquisitions/
IS: $10 gain in pretax income (write-down of liabilities), 40% tax, N.I. Goes up by $6 CFS: N.I. Goes up by $6, write-down is non-cash so subtract $10 = outflow of $4 BS: Cash goes down by $4, N.I. Makes R.E goes up by $6 then DR goes down by $10.
It's so strange to me how it's a gain because you're just keeping the cash customers paid you and recording it as a gain instead of revenue - but I guess that logically makes the most sense since it's essentially free money if you longer have the liability of having to deliver a good or service. And your profile says you're in M&A so if that's accurate then I trust you haha
I think whoever asks this question doesn't ask it in context of M&A scenario. (saying 3statements) It would've made more sense just saying what happens to 3 statement if DR goes down by $10
Sure, but then that's not a "write-down." If DR goes down (outside of acquisitions) that just means revenue is recognized, so in that case yes, your pretax income (revenues) increases.
Illum unde quaerat dolorem quidem molestias rerum laborum. Error voluptates ratione molestiae dolore et commodi. Neque consequatur consequatur et necessitatibus. Vel quo rerum et illum fuga. Exercitationem esse quasi qui tempore.
Eligendi placeat aperiam quis omnis quia aut nobis dolor. Ratione voluptates et non quibusdam.
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...