1. County of Riverside ■ Office of the Auditor-Controller Deferred Revenue Account Analysis Schedule S-12 Daisy Vergara Senior Accountant GAD – Reporting Unit Auditor-Controller’s Office

2. County of Riverside ■ Office of the Auditor-Controller Objectives  To provide departments the opportunity to validate the data in deferred revenue accounts prior to external auditor’s review  To provide an understanding of the criteria used to recognize revenue  To avoid unnecessary audit findings – New Statement on Auditing Standards 112 focusing on internal controls  To ensure proper representation of financial data 2

3. County of Riverside ■ Office of the Auditor-Controller Criteria for Revenue Recognition 3 Under Accrual Basis of Accounting (For Proprietary Funds only - Internal Service Funds, Enterprise Funds) : Revenue must be earned (measurable) before it can be recognized. However, cash does not have to be received (available) before revenue is recognized.

4. County of Riverside ■ Office of the Auditor-Controller Revenue must be earned (measurable) and available. This means it must be earned and cash must be received within 3 months or 12 months if expenditure-driven grant. The revenue must also be eligible to recognize revenue. Under Modified Accrual Basis of Accounting (For Governmental Funds only - General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds) : Criteria for Revenue Recognition 4

5. County of Riverside ■ Office of the Auditor-Controller Eligibility requirements: Allowable cost restrictions Time restrictions Contingencies Required characteristics of recipient  NOTE: Purpose restrictions cannot be used to establish eligibility. Criteria for Revenue Recognition Eligible or Eligibility The characteristic that must exist for a given entity to be considered qualified or allowed to take legal ownership of the money received for a particular program. 5

6. County of Riverside ■ Office of the Auditor-Controller Deferred Revenue 3 Deferred revenue arises when a potential revenue transaction does not meet both the “measurable” and “available” criteria for recognition in the current period.

7. County of Riverside ■ Office of the Auditor-Controller A. Proceeds Received in Advance of Revenue Entitlement (Unearned) 1. To receive cash in advance of revenue recognition: AccountDebitCredit Cash (101100)$100 Deferred Revenue (230XXX) $100 2. To recognize revenue once the criteria has been met: AccountDebitCredit Deferred Revenue (230XXX) $100 Revenue (7XXXXX) $100 7 Accounting Treatment

8. County of Riverside ■ Office of the Auditor-Controller B. Proceeds Received After Revenue Is Earned (Unavailable) 1.Once revenue has been earned by a governmental fund, a receivable and offsetting deferred revenue should be entered. If these amounts remain at year-end, it is considered “Unavailable.” These amounts should be identified using Schedule S-12. AccountDebitCredit Receivable (11XXXX)$100 Deferred Revenue(230XXX) $100 (continued)… 8 Accounting Treatment

9. County of Riverside ■ Office of the Auditor-Controller 2.Once proceeds are received (available), the entry should be reversed and the revenue should be recognized. Delaying the recognition of revenue until cash is received is a modified accrual concept for use with governmental funds only. AccountDebitCredit Receivable (11XXXX) $100 Deferred Revenue(230XXX)$100 To reverse initial entry Cash (101100) $100 Revenue(7XXXXX) $100 To recognize revenue B. Proceeds Received After Revenue Is Earned (Unavailable) Accounting Treatment 9

10. County of Riverside ■ Office of the Auditor-Controller Frequently Asked Questions Regarding Schedule S-12

11. County of Riverside ■ Office of the Auditor-Controller Frequently Asked Questions Are all departments expected to submit Schedule S-12? Yes. It is recommended that all proprietary and governmental funds submit schedule S-12 for each budgetary unit. On the schedule, indicate N/A, if not applicable, or zero if there’s no activity incurred during the year just so we know that we have everything. 11

12. County of Riverside ■ Office of the Auditor-Controller FAQ S-12 Does the ACO validate account balances? Yes, using YOUR documentation If your account balance is selected by the outside auditor, the department will be required to provide an explanation or description of the funding source, schedules, and supporting documentation, such as reconciliations, for testing and validation purposes. Schedule S-12 serves this purpose very well. 12

13. County of Riverside ■ Office of the Auditor-Controller FAQ regarding S-12 How much information should be included in the Description column? The auditors must be able to comprehend the description entered on the schedule. Acronyms / chartfields must be defined. 13

14. County of Riverside ■ Office of the Auditor-Controller Questions 14

15. County of Riverside ■ Office of the Auditor-Controller ACO Contacts For questions regarding deferred revenue, please contact: Daisy Vergara at micro 5-9659 Frank Leonard at micro 5-3877 Dolores Reyna at micro 5-9380 15