Revenue Recognition Timing

Another major issue in revenue accounting is when to recognize or record the revenue. A common practice is to record the revenue when we receive payment (cash) from the customer. This is referred to as the cash basis of accounting. However, the university uses the accrual basis of accounting and that means we record the revenue at the point of sale, which may be separate from when we receive payment from the customer.

Exchange Transactions

Revenue from exchange transactions occurs when each party receives and gives up essentially equal values (GASB 33, ¶1). These revenues should be recorded when the goods and/or services have been provided per the agreement with the customer. Under an accrual accounting system, the recognition of revenue is independent from when the cash is received.

If cash or check is received at the time of providing the goods/services, then the revenue is recorded via the cash receipt form or through the activity’s point-of-sale system.

If payment is to be received at a later date, a journal entry should be used to record accounts receivable and revenue in the month in which the goods/services were provided. Follow the guidelines in chapter 12, Accounts Receivable and Allowances, of the Guide.

If payment is received in advance of providing the goods/services, then the payment has been received before it has been earned, and it is unearned revenue. The cash receipt form should be used to deposit the funds into unearned revenue, liability accounts 150200–150299. Upon providing the goods/services, a journal entry should be completed to reduce unearned revenue and record revenue.

The above pertains only to exchange transactions with customers external to the university. All internal transactions (ISC sales, miscellaneous sales between departments) should not be accrued as receivables and payables between departments, but should be recorded as revenue/expense upon providing the goods/services.

Nonexchange Transactions

Sometimes the receipt of money is the result of a nonexchange transaction. GASB 33 ¶1 defines a nonexchange transaction as one in which a government gives (or receives) value without directly receiving (or giving) equal value in exchange. Nonexchange transactions are further classified as “imposed nonexchange transactions” and “voluntary nonexchange transactions.”

Imposed Nonexchange Transactions

GASB 33 ¶7.b. describes imposed nonexchange revenues as those resulting from assessments other than those on exchange transactions. Examples include fines and penalties such as late payment fees, parking tickets, bad check fees, etc. and escheats.The principal characteristic of these transactions is that the required transmittal of resources to the assessing government (CU) is imposed by that government on an act committed or omitted by the provider that is not an exchange transaction. Revenue and accounts receivable from these imposed nonexchange transactions should be recorded in the month in which an enforceable legal claim to the assets arises (GASB 33 ¶17).

Voluntary Nonexchange Transactions

GASB 33 ¶7.d. describes voluntary nonexchange transactions as those resulting from legislative or contractual agreements (other than exchanges) entered into willingly by two or more parties. This includes oral as well as written contracts, provided they are verifiable.

Examples of voluntary nonexchange transactions include certain grants, certain entitlements, and donations by nongovernmental entities, including individuals (private donations). Frequently, the provider establishes purpose restrictions and eligibility requirements. In many cases, the provider may require the return of the resources if the purpose restrictions or eligibility requirements are contravened after recognition of the transaction. (Refer to GASB 33 for a complete discussion on purpose restrictions and eligibility requirements.) The principal characteristics of voluntary nonexchange transactions are (1) they are not imposed on the provider or the recipient and (2) fulfillment of eligibility requirements is essential for a transaction (other than the provision of cash or other assets in advance) to occur. The primary sources of voluntary nonexchange transactions for CU are gifts and sponsored grants. All gifts are recorded as revenue when transmitted from the Foundation to CU or when deposited directly to a gift FOPPS from the donor. Grants revenue is generally recorded on a cost reimbursable basis.