I've been away from the FASB rulings for awhile so can't quote a specific section that covers this, but anytime you process funds on behalf of another party, those funds should be treated like a trust fund, a liability on your balance sheet. The net fees earned from providing such services are then your recordable revenue.
I know from experience in both advertising and mortgage industries, where there is a high level of pass through funds, a company may record the gross inflows as "sales", but this is mainly to get an idea of throughput (e.g. loan volume, advertising spend).
One way to possibly define internally is to look at your pricing model - if you mark up a source of inflow, then I would strongly consider it revenue. If not, then it is a pass through item, kept on your balance sheet. Please note, there are always exceptions (e.g. certain industries have regulated treatment of trust funds, as well as some states like to charge B&O taxes on ALL inflows), but that is my suggestion on general framework. I suggest talking further to someone in more detail that knows your particular business and locational elements.
3
Thanks Paul, that was helpful.
When servicing loans for others we deposited funds recieved into off balance sheet custodial accounts and kept them segregated until remitted to the client or whomever was due the funds. Typically interest earned on the funds is part of the revenue to the company managing the funds. You want to be very careful not to co-mingle the funds or treat them in any way that a creditor in bankruptcy would have a claim to them.
Thank you Tim, good point.
Revenues are recognized
when
(a) realized or realizable
and
(b) earned.
[SFAC No. 5, Para. 83]
Revenues
--> not recognized until realized or realizable.
--> not recognized until earned.
Revenues are realized
--> when products are exchanged for cash or claims to cash.
Revenues are realizable
--> when related assets received are readily convertible
to cash or claims to cash.
Revenues are earned
--> when the products are delivered
or
--> services are performed.
Basically revenue that is realizable ti when assets are converted to cash, Such receivables need to be collectible in near future (90 days). Thene the fees are actually billed and earned for services performed.
Otherwise they remain on the balance sheet.
Bob
Hope this helps
