Goodwill Accounting Firm
1200 Main Street
Alhambra, CA 90155
Dear Mr. Mayor:
After I have reviewed the Legal Plan Service’s revenue and expense recognition policies, I have some recommendations to correct the mistakes that I have found in revenue and expenses. In the balance sheet, Commission Advance Receivable accounts represent current and long term asset but I think both accounts should be in neither a receivable nor a liability in financial statements. According to ASC 985-605-55-32 where the AICPA Task Force on revenue recognition issues effectively concluded that a receivable does not exist when revenue cannot be recognized due to extended payment terms. As a result, SEC registrants should treat the contract as an executory contract under which neither party has performed. No revenue and no receivable should not be reflected in the financial statement, so I believe that it is generally not appropriate to record Commission Advance Receivable in this case.
Deferred member and associate cost is represented in the balance sheet as asset but I suppose it should be liabilities. According to ASC 605-10-S99 (SAB Topic 13, Revenue Recognition), amounts classified as deferred revenue should be ultimately expected to result in revenue recognition. Thus, advance payments that are received before services are performed are usually classified as deferred revenue, because these amounts will be recognized as revenue upon performance of the service. Some of the common reasons for revenue to be deferred , once cash has been received and identifies whether it is generally appropriate to record the related liability as deferred revenue. Generally, deferred revenue in this situation should be characterized as liabilities in the balance sheet. I also suggest the deferred income tax-current portion should be named income tax payable .
Revenue from service transactions should be recognized when it has been earned and is realized...