Deferred revenue write-down
Deferred revenue is a liability.
when we write down an asset, it is recorded as an expense on income statement.
when we write down owed debt (liability on balance sheet), it is a gain on income statement.
do we record write-down of def rev as a gain? Keep in mind this is def rev decreasing not because it was converted / recognized as revenue but rather “potential revenue” being lost.
Deferred revenue is a liability because cash was received before services were rendered. If you are "writing down" deferred revenue, that would mean you must refund cash to customers for a service they will never receive (anything else would be thievery). Since the revenue was never realized, the income statement would remain unchanged. This would be like a reversal instead of a "write-down."
OK i see how this makes sense. But then how do we account for it via 3 financial statements?
no change to IS. cash flow: deferred revenue decreases (a liability decreases) so cash goes down by 10. balance sheet: cash down 10, deferred revenue down by 10 (write-down). then no changes to equity.
Is this correct?
I think you are referring to a write down on an Accounts Receivable account. Deferred revenue is a liability because the company received the revenue but hasn’t provided the product/service yet, so I’m not seeing how they could have “potential” revenue that they already have. AR on the other hand can easily get written down if the company no longer believes they will receive that cash
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