Accounting Help - deferred revenue adjustment

Not a CPA, but keep in mind that for a growing company, this issue can cause net income/EBITDA to be overstated. Just as an example - if the company has been doing this for years and growth is flat, there should be no/minimal profit impact because even if I'm receiving a prepayment for a new customer today, I'm still doing work for a different client who paid me a year ago. On the other hand, if the business is growing rapidly, I might have $2 in new prepayments for every $1 of prepayment I received a year ago. Depending on when costs are actually incurred, this makes a cash-based business look far better than it actually is from an EBITDA perspective. That means if you are paying 5x EBITDA, you could be paying the future costs 6 times - 5x for profits that aren't actually profits, and 1x when you actually incur the cost of delivering the revenue.

Major changes in GAAP revenue recognition rules apply to private companies beginning in###-###-#### ASC606 is the new revenue recognition rule and the application of the rules will be primarily driven by the terms of your contract and when you incur costs. There could be a significant difference between prior years and 2019 and beyond if you plan on issuing GAAP financial statements. Make sure who ever is doing your Q of E understands how these new rules apply and you understand how it will apply to you post close when it comes to EBITDA, earnouts, debt covenants, etc.