Deferred Revenue

Account Analysis
Schedule S-12

Daisy Vergara
Senior Accountant
GAD Reporting Unit
Auditor-Controllers Office

County of Riverside Office of the Auditor-Controller

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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Accounting Treatment
A. Proceeds Received in Advance of
Revenue Entitlement (Unearned)
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)

1. 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)
2. 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
Regarding
Schedule S-12

County of Riverside Office of the Auditor-Controller

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 documentation

If 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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