How to treat Deferred revenue?

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November 18, 2023

by a searcher from Washington University in St. Louis in Chicago, IL, USA

Reduce from Purchase price or cash to buyer at closing? Business sold pre sold packages and services are yet to be rendered. Revenue would be recognize over 12 months depending on when the clients visit for their treatments.

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Reply by a searcher
from University of Tennessee in Nashville, TN, USA
I agree with ^redacted‌ that both options work. However, your example is for client treatments. Your choice, from my limited perspective, is to either take the profit on the front-end and reduce transaction price (via the NWC calculation) or when providing treatments.

The deferred revenues include profit margins per treatment and the clients are not likely required to pay additional amounts for said treatments at the time of service. Depending on the size of the deferred revenues, your practice may be busy, but not cash flow positive, if you reduce the transaction price by the deferred revenues amount. Generally, it would be beneficial to request a transfer of client pre-paids at closing to match realized revenues to specific performance at the time of treatment.
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Reply by a searcher
from Camosun College in Victoria, BC, Canada
Reduction to working capital adjustment. Either option you mentioned above works.
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