Definitions
Accrual-Basis Accounting for Revenue: An accounting system in which you record revenue based on when it is earned.
Cash-Basis Accounting for Revenue: An accounting system in which you record revenue based on when payment is received.
Deferred Revenue: Under accrual-basis accounting, deferred revenue is a liability that occurs when payment for an item or service has been received, but the value (goods or services) is still owed to the customer. When the payment is received, deferred revenue is recorded. Later, when the value is given (goods presented/services rendered) the deferred amount will move from deferred revenue to revenue.
Common Deferred Revenue Item Types in Advantage
- Advanced Barcode Tickets for capacity controlled items (e.g. movies, classes, jump, or admission for a future date).
-
Barcode Tickets for non-capacity controlled items. 17.1
- Deposits for future events (e.g. groups and birthdays).
- Player Cards (Also Gift Cards if using Player Card as Gift Card).*
- External Gift Cards.
- Rental.
-
Passes� 16.6, 18.1
- Classes
*When using Player Card as a Gift Card, Gift Card and player card are synonymous.
**Additional passes added to items (e.g. Barcode tickets, Passes) will follow the deferred revenue settings of the main item.
Example Accounting Entries (Reflected in the End of Day Balance Report)
All transactions in this report are recorded as a debit and credit to balance out. The following examples and definitions will demonstrate how the balance is achieved.
Player Cards
A $10 player card is sold to a guest. This will post a debit to the appropriate tender type (e.g. cash, credit card) and post a credit to Player Card Value Added (a deferred revenue account):
|
Debit |
Credit |
Cash |
$10.00 |
|
Player Card Value Added |
|
$10.00 |
The $10 player card is used. When the guest uses the value of the card, it will post to the appropriate sales item. The value posts a debit to Player Card Value Used and a credit on the appropriate revenue category (e.g. food revenue if an item in the food category is purchased):
|
Debit |
Credit |
Food Revenue |
|
$10.00 |
Player Card Value Used |
$10.00 |
|
The $10 player card is used on gameplay. When the player card is used at an arcade game, the revenue credit will post to the category associated with the appropriate reader play item (or mapped to a game with cashless card integration):
|
Debit |
Credit |
Reader Play Revenue |
|
$10.00 |
Player Card Value Used |
$10.00 |
|
Discounted Player Cards
A discounted player card is sold. A $10 player card is sold to a guest with a 10% discount for $9.00 cash. Cash is debited $9 and Player Card Value Added is credited $10, and�Player Card Discounts Added is credited for $-1.00 (reduction of revenue through a discount). This is the same as the entry when a standard player card is sold, just based on the value the card was sold for. The $1 in extra value that the guest receives isn't reflected until time of use.
|
Debit |
Credit |
Cash |
$9.00 |
|
Player Card Value Added |
|
$10.00 |
Player Card Discounts Added | $-1.00 |
A discounted player card is redeemed. When the guest uses the card for the $10 value at POS, Player Card Value Used will be debited by $9 (the amount paid for the card) and $10, the value that the customer receives will go to the revenue category associated with what they bought. In this example, let's assume they used the player card to buy some food. The difference goes to Player Card Discounts Used as a negative credit (reduction of revenue through a discount):
|
Debit |
Credit |
Food Revenue |
|
$10.00 |
Player Card Discounts Used |
|
$-1.00 |
Player Card Value Used |
$9.00 |
|
A discounted player card is redeemed for gameplay. When you sell a card that has cash value and discounted points (e.g. a card has a mix of paid and free points. The game revenue will be prorated on the games. In this case, there is a $9 value added and the revenue category associated with the gameplay item will be credited. For example, if the same $10 card that had been discounted 10% from the earlier example is sold again and a customer plays a $1 arcade game with that card, $0.90 would post to Player Card Value Used as a debit and $0.90 would post as a credit to the revenue category of the gameplay item:
There will not be Player Card Discounts Used; the discounted amount is prorated in the item where the games are played).
|
Debit |
Credit |
Reader Play Revenue |
|
$0.90 |
Player Card Value Used |
$0.90 |
|
Sell a Player Card at a 100% discount.�When you sell a card at 100% discount, there are no sales affected on EOD Balance because there is no cash or revenue to post for accounting purposes. This transaction does not show on the EOD Balance Report at all (but will show on the sales reporting).
Cashless card systems (Embed, Sacoa, Intercard) reports will show the game was played but it does not post to sales, so Embed and CE reports will not be the same.
Package Allocation with a Player Card
If a Player Card is included in the package, the allocation will determine the value that goes towards revenue. If there is no value allocated towards Player Card(s) in a package, it will work as if the Player Card is 100% discounted.
Online Player Card Sales
Player Cards can be sold online in 3 ways:
- Add value to an existing Player Card
- Will call
- "To Ship" (order fulfillment via Advantage Web)
Will Call and "To Ship" Player Cards are processed a little differently, but the accounting impact is the same.
Add Value to an Existing Player Card. When value is added to a pre-existing player card online, this happens just as though a card was sold in-house. The tender type is debited and Player Card Value Added is credited:
|
Debit |
Credit |
Cash |
$10.00 |
|
Player Card Value Added |
|
$10.00 |
A Will Call Player Card or "To Ship" Player Card is sold online. When a player card is sold online as a will call ticket or as a "to ship" player card, the value will post a debit to the appropriate tender type on the day it is purchased online and will post a credit to Web Store Card Clearing:
|
Debit |
Credit |
Credit Card |
$10.00 |
|
Web Store Card Clearing |
|
$10.00 |
An Online Player Card Will Call Ticket is redeemed or a "To Ship" Player Card is created. When the will call ticket is redeemed at POS or when you create a "to ship" card through the fulfillment process in Manager Console, Web Store Card Clearing is debited and Player Card Value Added is credited:
|
Debit |
Credit |
Web Store Card Clearing |
$10.00 |
|
Player Card Value Added |
|
$10.00 |
An Online Player Card is used. Now, when this card is used, it will post just like a standard player card:
|
Debit |
Credit |
Food Revenue |
|
$10.00 |
Player Card Value Used |
$10.00 |
|
Barcode Tickets (e.g. Movie, Capacity, Class Tickets) Purchased in Advance
The capacity management application must be set to deferred (e.g. Theater, Areas/Groups, Classes).
Advanced Tickets post to Other Deferred Revenue on the End of Day Balance Report. For our example, on June 1, a ticket is purchased for June 5.
On the day the ticket is bought, the value of the ticket will be posted as a debit to the appropriate tender type (e.g. cash) and posted as a credit to Other Deferred Revenue Received:
June 1 |
Debit |
Credit |
Cash |
$10.00 |
|
Other Deferred Revenue Received |
|
$10.00 |
On the day the ticket is issued for, the value of the ticket will be posted as a debit to Other Deferred Revenue Used and posted as a credit to the appropriate revenue account and (if applicable) to the appropriate tax account:
June 5 |
Debit |
Credit |
Ticket Revenue |
|
$9.50 |
Sales Tax |
|
$0.50 |
Other Deferred Revenue Used |
$10.00 |
|
Barcode Ticket Returns
A refund, with a receipt is issued (and the ticket is canceled):
June 3 |
Debit |
Credit |
Cash |
$-10.00 |
|
Other Deferred Revenue Received |
|
$-10.00 |
A refund without a receipt is issued. If the value for the item is refunded, there is no ticket to cancel, therefore it is just a cash return and the revenue for the ticket item.
June 3 |
Debit |
Credit |
Cash |
$-10.00 |
|
Ticket Revenue decreased |
|
$-10.00 |
Barcode Tickets (When set to Deferred Revenue) Purchased in Advance
Advanced Barcode Tickets post to Barcode Deferred Revenue on the End of Day Balance Report. For our example, on June 1, a barcode ticket is purchased for June 5.
On the day the ticket is bought, the value of the ticket will be posted as a debit to the appropriate tender type (e.g. cash) and posted as a credit to Barcode Deferred Revenue Received:
June 1 |
Debit |
Credit |
Cash |
$10.00 |
|
Sales Tax |
|
$0.90 |
Barcode Ticket Deferred Revenue Received |
|
$9.10 |
On the day the ticket is issued for, the value of the Barcode Ticket will be posted as a debit to Other Deferred Revenue Used and posted as a credit to the appropriate revenue account and (if applicable) to the appropriate tax account:
June 5 |
Debit |
Credit |
Barcode Ticket Revenue |
|
$9.10 |
Deferred Barcode Ticket Revenue Used |
$9.10 |
|
Passes (When set to Deferred Revenue at Pass Setup) Purchased in Advance
Passes post to Pass Deferred Revenue on the End of Day Balance Report. For our example, a Season Pass is purchased on June 1 and good for up to 4 admissions days until August 31, 2017.
On the day the pass is bought, the value of the pass will be posted as a debit to the appropriate tender type (e.g. cash) and posted as a credit to Pass Deferred Revenue Received:
June 1 |
Debit |
Credit |
Cash |
$40 |
|
Sales Tax |
|
$2.00 |
Pass Deferred Revenue Received |
|
$38.00 |
On June 5th, one of the admissions on the pass is used. A prorated value of the pass will be posted as a debit to Pass Deferred Revenue Used and posted as a credit to the appropriate revenue account. The system prorates the value based on expected number of uses. In this case, $10 is the prorated amount, assuming the pass will be used 4 times.
June 5 |
Debit |
Credit |
Pass Revenue |
|
$10.00 |
Pass Deferred Revenue Used |
$10.00 |
|
For each additional pass use, the above will occur. If the guest does not use the pass again (in this case, it has only been used once), on September 1st the site will process unused passes. The value will be realized as revenue and decrease Deferred Revenue Used.
September 1 |
Debit |
Credit |
Pass Revenue |
|
$30 |
Pass Deferred Revenue Used |
$30 |
|
Birthday or Group Deposits
A deposit is received for $50 on a $200 event. When the deposit is received, the value will post as a debit to the appropriate tender type (e.g. cash) and post as a credit to Birthday Deposit Received or Group Deposit Received (depending on the event type):
|
Debit |
Credit |
Cash |
$50.00 |
|
Birthday Deposits Received (or Group Deposit Received) |
|
$50.00 |
The event is finalized. When the event is finalized (on the day of the event) the value will post as a debit to Birthday (or Group) Deposits Redeemed and will post as a credit to the Category/Subcategory for the event along with the final payment. In this example, the customer paid the remaining $150 for the event with cash:
|
Debit |
Credit |
Cash |
$150.00 |
|
Birthday Party Revenue |
|
$200.00 |
Birthday Deposits Redeemed (or Group Deposit Redeemed) |
$50.00 |
|
FAQs
What is the Pre Processed Cards value?
This is the value placed on cards that were created for an event. This shows as a debit in Pre Processed Cards when the cards are created and then as a credit in Pre Processed Cards Finalized once the event has been finalized.
What happens to the deferred revenue for an event deposit if an event does not get finalized?
The value remains in deferred revenue and does not post to sales (credit). This is why it is important to always finalize events upon completion.
What happens with deferred event deposits (Group or Birthday) if the event is canceled?
There is an option to forfeit a deposit (e.g. in the event of a cancellation). In this case, when the event is canceled, the deposit posts as revenue (to the item specified for forfeited deposits).
What happens when we wipe a Player Card from the system?
The value of the card is posted as Player Card Value Used (debit) and to the item specified for expired points (credit).
What are the laws regarding deferred revenue for cards?
Every state and country has different rules regarding deferred revenue. Please refer to your accounting team, the IRS, or other appropriate resource for further information.
When are taxes applied/taken?
When the value posts to revenue (if the item/services are a taxed item). For example, a guest uses a gift card to purchases a shirt that has tax included. The value of the amount used on the card will post to Player Card Value Used (debit) and to the Category/Subcategory of the shirt item for the cost of the shirt (credit) and the tax value will post to Sales Tax (credit).
Are Time Play and Player Privileges with Player Cards also deferred revenue?
No, these items post to revenue when purchased. This is because the time/play privileges are given to the guest and not owed/liability.
Which method of accounting should I use?
Each method of accounting mentioned in this document (Cash and Accrual) have both pros and cons. It is up to each individual and business to determine which method is best for them. Each situation is unique and different, therefore it is recommended that business owners consult with their business advisor and/or accountant to determine which method is best for them. Below are some of the pros and cons for each method.
Pros and Cons
Accrual Method (with Deferred Revenue)
Pros
- Allows revenues to be matched with related expenses.
- When a customer purchases an item that is deferred revenue, under the accrual method, no revenue is recorded. When the customer later returns and uses the gift card, then the revenue is recorded. It is also at this point that the expenses (cost of items purchased) are recorded. Since the revenue and related expenses are recorded at the same time, it provides a truer picture of profitability than the cash method.
- The financial information provided from the accrual method is more indicative of the true financial position of a business and therefore more relevant for decision making.
- Taxes are not owed until the deferred revenue items are redeemed.
Cons
- Requires more time and effort to maintain accounting records compared to the cash method.
- Is less illustrative of cash flows than the cash method.
- Like the example above, when a customer purchases a gift card, no revenue is recorded. However, cash was received for the gift card. The business owner looking at accrual revenue may conclude that the business has no inflow of cash. This is not the case, cash was received, but the revenue has not yet been recorded.
- State and federal laws require sales posting after a specified time period.
Cash Method
Pros
- Requires less time and effort to maintain accounting records compared to accrual method.
- Is more illustrative of cash flows than accrual method. By definition, the cash method records revenues and expenses when they are received or paid. This makes it easy for a business owner to quickly assess the cash flows based on cash method information.
Cons
- Hard to determine true profitability due to timing of revenue and related expenses being recorded.
- Using the same gift card example from the accrual method, under the cash method when the gift card is sold, the revenue would be recorded. However, at this point no costs have been incurred and therefore no expenses have been recorded. This means revenue is high and expenses are zero. This could lead a business owner to believe that profitability is high. Furthermore, when the customer returns and uses the card, no revenue will be recorded, since it was previously recorded. However, the expenses related to the use of the card (cost of items the gift card was used on) will be recorded. This means revenue is zero and expenses are high. This could lead a business owner to believe that profitability is low. In the long term, these timing issues resolve themselves because both the purchase of the gift card and use of the gift card will have occurred. However, looking at a snapshot of financial data using cash method of accounting could be misleading.
- The financial information provided from cash method may not be indicative of the true financial position of the business and therefore may be less relevant for decision making.
Mixed use accounting
Some businesses choose a mix of accrual and cash method accounting, this is known as Modified Cash Basis. This allows business owners to select which method is appropriate for a specific area. For instance, using deferred revenue for group deposits but not for player or gift cards. It is important to note that this method is a hybrid method and doesn't reflect US Generally Accepted Accounting Principles.
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