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bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 2663
Experience:  IRS Enrolled Agent, 18+ years of experience in tax preparation with associated finance experience.
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1) Our company sales a piece of equipment to customers 2)

Customer Question

1) Our company sales a piece of equipment to customers
2) Besides fulfilling the purpose of the sell, the equipment collects vehicular traffic data
3) We bring that data back to our company through a cloud application every night
4) We pay a month modem cost to bring that data back
5) Sometime in the next 12 months (most likely around 9 months) we will begin to sale the collected data on a web site
6) It will not be sold to the customer in number 1 above
7) The modem fees accumulated will not be able to be linked to any individual sales
8) We have no idea what the sales volume will be to start
9) It feels like the accounting treatment for this should be a DEFERRED EXPENSE to meeting the matching principle
10) However, since the data will be sold to multi parties over multiple periods (some times as long as 36 months after the initial modem expense was incurred) there is no clear way to match expense to revenue, so...
11) Is this a deferred expense that gets recognized pro rata over time or an immediate expense ahead of the revenue or do arbitrarily try to match accumulated expenses to revenue real time or is there another way to account for this per GAAP?
Submitted: 5 months ago.
Category: Finance
Expert:  bkb1956 replied 5 months ago.
Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.From a practical perspective, it makes little sense to defer the expenses associated with smaller amounts of unconsumed goods and services, since the accountant/bookkeeper must manually enter the deferral in the accounting software (rather than to the pre-set expense account), as well as remember to charge these items to expense at a later date. Instead, charge these items to expense immediately, as long as there is no material effect on the financial statements. You should defer expenses when generally accepted accounting principles or international financial reporting standards require that they be included in the cost of a long-term asset, and then charged to expense over a long period of time. The following links contain excellent information which you will find helpful: let me know if I can assist you further.Thank you and best regards,Barb
Expert:  bkb1956 replied 5 months ago.
Just following up with you to see if you have any other questions or concerns. If so, please come back to me here, and I will be happy to assist you.Best regards,Barb

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