Given the following facts, when should the invoice date be? 12/31/14 or 1/1/15? *Contract signed/executed 12/31/14 (i.e., bookings count toward 2014 sales quota) *Contract term start 1/1/15 - 6/30/15 *Payment term: Prepay entire contract amount, net 30 B/S impact: 12/31/14 invoice date GL impact: DR: Receivable CR: Deferred Revenue Question: Do we truly have a receivable at 12/31/14 even though contract does not start until 1/1/15? From the customer's perspective, there is no liability on their end at 12/31/14, thus invoice would not be entered in their system until 1/1/15. Any input and
Receivable/Deferred Revenue Billing Timing Question
Answers
One more fact needed: Is the contract cancellable or non-cancellable as of 12/31/2014? In other words, are you entitled to the money, no matter what, as of 12/31/2014?
Is the contract cancellable or non-cancellable as of 12/31/2014?
This is not specifically called out in the contract, however customer does have the right to terminate due to performance.
(i.e., bookings count toward 2014 sales quota) <<-- your intent is what is throwing you off. Look at your journal entry and think about the matching principle.
BTW, billing terms are bill upfront and payment is nonrefundable, do these additional facts have any bearing on invoicing date?
Emerson - By matching principle, are you indicating because there is no liability on the customer's end , thus we should not carry an asset at 12.31.14?
It is my opinion that your receivable and your revenue should be recorded/recognized in 2015. At best, it can be a footnote or disclosure in your financials.
You want to book 2015 revenue in 2014 to satisfy 2014 quota by invoicing it as 12/31/14 when the invoice should be dated 01.01.15.
Emerson, but we are not recognizing revenue in 2014, invoicing's impact is on deferred revenue, 100% of the invoice amount would be reflected in deferred revenue @ 12.31.14 and recognized as earned in 2015.
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You want to invoice 12.31.14 so you can defer the revenue? It does not make sense (to me). You should invoice it 01.01.15. It solves all your problems. My opinion is that you do not have a receivable in 2014.
As I said, at best, the transaction can be a footnote or a disclosure in your financials.
Since, there is mild confusion, I would footnote the transaction in 2014. They, possibly will record the offsetting liability in 2015.
Another reason NOT to place it in receivables in 2014 is Audit Confirmation.
Don't mix revenue recognition with when a sale gets booked. If you have a valid contract executed in 2014 it should get booked and show up in AR and Deferred Revenue in 2014. We have been through this with auditors under both perpetual license and SaaS accounting rules. You still need to evaluate collect-ability of the AR, just remember if you reserve any of the AR it goes against deferred revenue.
Invoice the item on January 15. No customer will pay terms based on an invoice issued on December 31 for something that starts January 15. A booked sale for commission purposes should not drive your accounting. Invoicing it on Dec 31, will create working capital
I confirmed with a former
Now, you have to make a choice?
Forgive any spelling error. I had a stroke, in January, so I am still slowly recovering.
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