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Deferred Revenue Account Analysis Schedule S-12

Deferred Revenue Account Analysis Schedule S-12. Daisy Vergara Senior Accountant GAD – Reporting Unit Auditor-Controller’s Office. Objectives. To provide departments the opportunity to validate the data in deferred revenue accounts prior to external auditor’s review

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Deferred Revenue Account Analysis Schedule S-12

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  1. Deferred RevenueAccount AnalysisSchedule S-12 Daisy Vergara Senior Accountant GAD – Reporting Unit Auditor-Controller’s Office

  2. Objectives • To provide departments the opportunity to validate the data in deferred revenue accounts prior to external auditor’s 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 2

  3. Criteria for Revenue Recognition • Revenue must be earned (measurable) before it can be recognized. However, cash does not have to be received (available) before revenue is recognized. Under Accrual Basis of Accounting(ForProprietary Funds only - Internal Service Funds, Enterprise Funds) : 3

  4. Criteria for Revenue Recognition Under Modified Accrual Basis of Accounting(ForGovernmental 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 beeligibleto recognize revenue. 4

  5. 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. 5

  6. 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. 3

  7. A. Proceeds Received in Advance of Revenue Entitlement (Unearned) Accounting Treatment 1. To receive cash in advance of revenue recognition: AccountDebitCredit Cash (101100) $100 Deferred Revenue (230XXX) $100 2. To recognize revenue once the criteria has been met: AccountDebitCredit Deferred Revenue (230XXX) $100 Revenue (7XXXXX) $100 7

  8. 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 DebitCredit Receivable (11XXXX) $100 Deferred Revenue(230XXX) $100 (continued)… 8

  9. 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. • AccountDebitCredit • Receivable (11XXXX) $100 • Deferred Revenue(230XXX) $100 • To reverse initial entry • Cash (101100) $100 • Revenue (7XXXXX) $100 • To recognize revenue 9

  10. Frequently Asked Questions RegardingSchedule S-12

  11. 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 there’s no activity incurred during the year just so we know that we have everything. 11

  12. 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. 12

  13. 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. 13

  14. Questions 14

  15. 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 15

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