Deferred Revenue Account Analysis Schedule S12

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Deferred RevenueAccount AnalysisSchedule S-12

• Daisy Vergara
• Senior Accountant
• GAD Reporting Unit
• Auditor-Controllers Office

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Objectives

• To provide departments the opportunity to
  validate the data in deferred revenue accounts
  prior to external auditors review
• To provide an understanding of the criteria used
  to recognize revenue
• To avoid unnecessary audit findings New
  Statement on Auditing Standards 112 focusing on
  internal controls
• To ensure proper representation of financial data

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Criteria for Revenue Recognition
Under Accrual Basis of Accounting (For
Proprietary Funds only - Internal Service Funds,
Enterprise Funds)

• Revenue must be earned (measurable) before it can
  be recognized. However, cash does not have to be
  received (available) before revenue is recognized.

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Criteria for Revenue Recognition
Under Modified Accrual Basis of Accounting (For
Governmental Funds only - General Fund, Special
Revenue Funds, Capital Project Funds, and Debt
Service Funds)

• 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.

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Criteria for Revenue Recognition
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.

• Eligibility requirements
• Allowable cost restrictions
• Time restrictions
• Contingencies
• Required characteristics of recipient
• NOTE Purpose restrictions cannot be used to
  establish eligibility.

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Deferred Revenue
Deferred revenue arises when a potential revenue
transaction does not meet both the measurable
and available criteria for recognition in the
current period.
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A. Proceeds Received in Advance of
Revenue Entitlement
(Unearned)
Accounting Treatment
1. To receive cash in advance of revenue
recognition Account Debit Credit
Cash (101100) 100 Deferred Revenue
(230XXX) 100
2. To recognize revenue once the criteria has
been met Account Debit Credit
Deferred Revenue (230XXX) 100
Revenue (7XXXXX) 100
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Accounting Treatment
B. Proceeds Received After Revenue Is Earned
(Unavailable)

• 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.
• Account Debit Credit
• Receivable (11XXXX) 100
• Deferred Revenue(230XXX) 100
• (continued)

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Accounting Treatment
B. Proceeds Received After Revenue Is Earned
(Unavailable)

• 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.
• Account Debit Credit
• Receivable (11XXXX) 100
• Deferred Revenue(230XXX) 100
• To reverse initial entry
• Cash (101100) 100
• Revenue (7XXXXX) 100
• To recognize revenue

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Frequently Asked Questions

• RegardingSchedule S-12

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Frequently Asked Questions

• Are all departments expected to submit Schedule
  S-12?
• Yes. It is recommended that all proprietary
  and governmental funds submit schedule S-12 for
  each budgetary unit. On the schedule, indicate
  N/A, if not applicable, or zero if theres no
  activity incurred during the year just so we know
  that we have everything.

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FAQ S-12
Does the ACO validate account balances? Yes,
using YOUR documentationIf your account balance
is selected by the outside auditor, the
department will be required to provide an
explanation or description of the funding source,
schedules, and supporting documentation, such as
reconciliations, for testing and validation
purposes. Schedule S-12 serves this purpose very
well.
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FAQ regarding S-12

• How much information should be included in the
  Description column?
• The auditors must be able to comprehend the
  description entered on the schedule. Acronyms /
  chartfields must be defined.

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Questions
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ACO Contacts

• For questions regarding deferred revenue, please
  contact
• Daisy Vergara at micro 5-9659
• Frank Leonard at micro 5-3877
• Dolores Reyna at micro 5-9380

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