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revenue recognition for subscription via reseller?

Can I recognize revenue on pre-sale of a subscription to be provide to third party?

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We run a website for which we sell access/subscription (like Spotify etc).  We occasionally sell bulk subscriptions to third parties who provide them as gifts to their customers - the end user is not the business itself.  An example would be a company pre-buying 1000 'codes' providing 1 person a 12 month subscription to our and distributing them to their customers as part of a promotion.  If selling a 12 month subscription directly to a consumer, I understand we recognize revenue on delivery of the service from use of the code over 12 months.  I'm aware of breakage and how to manage un-used codes.   I'm trying to figure out if these assumptions are correct in the case of third party sales:

1. If the codes can be used any time before a given expiration rate and when they are used they provide access for, say, 12 months, no matter when they are redeemed, then we would account for them from use just as we would when selling directly to a consumer as the liability to provide the service dates from redemption in the normal way? (I understand about breakage and so on)

2.  If we sell codes that grant access between specific dates - between January 1st and December 31st, for example - then we could recognize revenue over this period, regardless of whether or not the vouchers are redeemed.

I'm certain that just because the codes are sold to a third party we can't transfer the liability at that point to the third party, even the consideration is non-transferable. Though would be good to know if it was!

Thanks for any help!

Replies (6)

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By Accountant A
10th Jan 2020 21:39

So you do all of that, but have no accountant? That's an omission,that you really should address.

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Replying to Accountant A:
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By JC001
10th Jan 2020 21:52

Thanks Accountant A
We have access to an accountant up to a point - we're a small, new business and this is a new development for us. I thought worth trying this forum for help, but maybe not.

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Replying to JC001:
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By Accountant A
10th Jan 2020 22:25

JC001 wrote:

Thanks Accountant A
We have access to an accountant up to a point - we're a small, new business and this is a new development for us. I thought worth trying this forum for help, but maybe not.

A business that doesn't see the value of good professional advice probably won't do very well.

You don't do what you do for free; why should accountants?

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By paul.benny
11th Jan 2020 10:45

Accountant_A has a point but is also being a little harsh. You've clearly thought this through and are trying to validate your thinking.

A fundamental accounting concept is the matching (over time) of costs and revenues. The reason you have to spread revenue on a 12 month subscription over the year is that your costs are also spread over the year.

Whether you sell direct to the user or the subscriptions are bought by an intermediary, your costs still are spread over the subscription period. Therefore your revenue should also be spread. So to answer the question in the subheading, no.

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Replying to paul.benny:
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By JC001
12th Jan 2020 12:00

Thanks Paul, that's helpful. I might have misunderstood the purpose of Accounting Web as I'd come across people asking and receiving advice and thought it was a forum for that. I didn't realize you had to be an accountant to get this advice. I've studied some accounting as part of an MBA. Maybe that doesn't count, but I do offer bits of professional advice for free all the time if asked. Anyhow, thank you for the clarification. I think as long as we stick to the principal that revenue is recognized in accordance with delivery and the cost of delivery, then it seems fairly straightforward, despite various possible scenarios. Much obliged.

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Replying to JC001:
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By paul.benny
12th Jan 2020 12:15

Glad to be of assistance. Sensible questions like yours normally get sensible and helpful answers, so stick around. You don't have to be an accountant.

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