Deferred Revenue Recognition

We are looking to include the sale of an extended warranty on our products however we are only able to recognize a portion of the revenue from the sale of the warranty each month.

Ex. If we sell a product for $100 with a 12 month extended warranty for $60, we can recognize the sale of the asset for $100 however we can only recognize 1/12 of the extended warranty revenue each month ($5). Customer would pay the entire $160 at point of sale.

Any thoughts/suggestions/white papers would be greatly appreciated.

Thanks
Michael

First, let me start out by saying I am not a financial person but this is one solution I saw at a company I was at:

1.Create a "service" item to use on the Sales Order with a GL Class Code that points to a Deferred Revenue Account. This will be a liability account.

2.At the end of the month, take the net added amount to that account (just do it as a total not by each order) and create a scheduled distribution between the Deferred Revenue and Revenue Account (the Asset Account) at a rate of 1/12 per month. This is based on total amount.

3. Each month add the new net added amounts and process the previouse amounts.

This was a simple solution but works. They actually had two different warranty periods so they had two deferred accounts that were distributed at different rates.

Not sure if the response was from RH or DW but I appreciacte it nonetheless. I will mess with setting this up in PY. Thanks again.

Michael