How Revenue is Deferred and Recognized in SmartRec

Learn how SmartRec defers revenue for each occurrence type on an accrual basis.

Nathalie Parmentier avatar
Written by Nathalie Parmentier
Updated over a week ago

Organizations that use accrual accounting must show revenues on the income statement in the period of which they are earned, not in the period when the cash is collected. Journal entries automatically defer and recognize revenue based on when the product or service is delivered.

If the product or service does not have a date assigned to it, these items are immediately recognized as revenue. Custom invoice items, service fees, cancellation fees, Merchandise and/or Fundraising are never deferred.

All other types of items are deferred and recognized until the service is delivered. The specific rules for each item depend on the type of service and can result in a deferral based on occurrence(s) or time (e.g. monthly).

Deferral by Occurrence

Services with a single occurrence will be fully recognized on the day of the occurrence. This applies to services that occur over multiple consecutive days. In this case, all revenue is recognized at the start of the occurrence. For services that have multiple individual occurrences, a portion of revenue is recognized on the day of each occurrence.

Deferred by Activity occurrence (session, drop-in)

An activity that has one occurrence will recognize all of the activity’s revenue on the day of the month that the activity occurs. If an activity is taking place over multiple days, the revenue will be recognized on the first day of the activity.

For an activity that has multiple individual occurrences, a portion of revenue is recognized on the day of each occurrence. If an activity has multiple occurrences that occur for different amounts of time, the revenue of each activity is recognized evenly across each occurrence.

Deferral by Private Lesson occurrence

Private lessons are always booked as a single occurrence. Due to this, revenue will be fully recognized on the day that the private lesson takes place.

Deferral by Month

Services delivered over multiple months will recognize revenue each month for the duration of the service. Revenue is recognized either on the day that the service expires or at the end of the month. For example, if there is a 6-month membership that expires on the 18th of the month, deferred revenue will be recognized on the last day of the month for every month except the last month of the membership. For the last month, revenue will be recognized on the 18th of the month.

Deferral by Contract

A contract with a single occurrence will recognize the entire revenue on the day of the occurrence. Additionally, revenue from extras will also be recognized on this day.

A contract with multiple occurrences will recognize a portion of revenue on the day of each occurrence. On the day of the final occurrence, all of the revenue from extras will be recognized.

Online Facility Bookings

Since online facility bookings are always booked as a single occurrence, revenue will be fully recognized on the day of the occurrence.

Monthly Memberships and Subscriptions

Revenue is recognized once a month during the duration of a membership or subscription. Revenue is recognized at the end of the month unless a membership or subscription expires before the end of the month. In this case, revenue would be recognized on the day that the membership or subscription expires.

Examples:

  • A subscription was purchased and is valid from December 1st to January 10th. The revenue for the subscription for the month of December is recognized on December 31st. The revenue for the subscription for the month of January is recognized on January 10th.

  • A subscription was purchased and is valid from January 1st to January 15th. The revenue for the entire subscription will be recognized on January 15th.

How revenue from a Multipass is deferred and recognized

When a client purchases a Multipass, it represents a liability to your organization since they have paid for a service that has not yet been delivered.

Multipass liability is tracked separately from deferred revenue because of Multipasses’ unique function. Instead of deferring revenue for the sale of a Multipass based on a specific time frame or date when a service will be delivered, the liability is deferred to when a pass is redeemed, which means each time a pass is used, the value of that pass is recognized.

For example, a client has paid $50 for a Multipass with 5 passes. As each pass is used, $10 is deducted from the Multipass liability account and is recorded as revenue. However, the ledger account that is used to record the revenue depends on how the Multipass is used:

  • If the pass is used to register to a drop-in, the revenue is recognized in the general ledger account associated to the activity.

  • If a pass is used to register to a private lesson, the revenue moves from the liability account into the private lesson's GL on the day the private lesson takes place.

  • If the pass is used to access a facility (BETA), revenue is recognized in the general ledger account assigned to the Multipass.

  • If on the day the pass expires, there are unused passes, whatever amount remaining in the default liability account will be recognized as revenue in the general ledger account associated to the Multipass.

👉 IMPORTANT: When a Multipass has unlimited passes, it cannot be determined how much each individual pass is worth. This can occur in two situations:

i) If a Multipass has unlimited passes and an expiry date, the full amount will remain a liability until the expiration date. This amount will be recognized in the revenue general ledger account that is assigned to the Multipass.

ii) If a Multipass has unlimited passes and no expiration date, the amount will be recognized immediately as revenue in the revenue general ledger account that is assigned to the Multipass.

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