I am curious as to whether we have the right to recognize revenue in the following scenario: -We are a
Revenue Rec Question for Management Companies
Answers
This sounds similar to reimbursable expenses in the A&E (Architecture & Engineering) industry. Standard presentation is to record Service Revenue (your management fee) plus Reimbursable Revenue (pass-through invoices) less Reimbursable expenses (cost of pass-through expenses) which equals Net Service Revenue (NSR). The NSR captures any markup you charge on these pass-through charges. This method also has the benefit of keeping the Management Company's operating expenses separate from pass-through costs allowing you to simply run your op ex analysis as a % of NSR.
Krista is correct, but usually recording reimbursable revenue separately from expenses is when for example a consultant incurs his/her own travel/hotel/meal expense, and is getting reimbursed for these services that he consumed/initiated etc.
In your case they are not "your" expenses, you are just the money distributor. You should consult the gross vs. net guidance in EITF 99-19.
Here is a good summary:
http://www.accountingtools.com/revenue-gross-or-net
I agree with Doug. The company I am with was in the Property Owner Industry. We had a separate GL AR account for tracking the AR by Customers (Sub-Ledger for each of the Property Owners) due to the timing difference (Getting the reimbursement for utilities we paid on their behalf). We recorded all the amounts paid as debits into the “customers / Property Owners” Sub-ledger and the cash received as credits into their ledgers. This kept the amounts paid and received out of the Income Statement and therefore out of Revenue in accourdance with EITF 99-19.
These amounts are not your income or expenses as thier is no mark-up.
If there was a mark-up, only the mark-up amount should be recognized as Revenue.
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Thanks Carla! Thats just the type of analogy I was looking for. Our model is very similar to a Education Management Service provider. I had assumed we would count these as Revenue.
My only question now is whether we have the right to record as Revenue the pass through amounts that our customer is legally liable for, such as a lease. The lease is in their name, but as we are managing the facility,we will be paying the lease payment, and getting reimbursed.
You have to check what official rulings have been made for your industry. For our industry, we do count all expenses including lease payments to either us or to third parties. Then things get netted appropriately.
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Carla,
To clarify: you as the management company would count the reimbursement of a lease expense from your customer as revenue?
Where would i find the rulings by industry?
Total School Expenses were counted as revenue. Google Rev Proc and you will see a string of IRS references; you'll have to dig for yours.