USA Revenue Recognition for School Tuition

[1maj]

I have a question re: revenue recognition for school tuition.

Let's say I am a school. I bill students $10,000 for each school year. A school year is two semesters, Fall and Spring.

The school year starts in the Fall and ends in the Spring.

Before the beginning of the school year, I bill students $10,000 for the year. $5,000 for Fall; $5,000 for Spring.

Should the Spring semester be recorded as Deferred Revenue?

I.E. when I bill a student; should be entry be:

Dr. A/R - $10,000
Cr. Tuition Revenue - $10,000

Or:

Should it be:

Dr. A/R - $10,000
Cr. Tuition Revenue - $5,000
Cr. Deferred Revenue - $5,000

I know revenue can only be recognized once it is earned but I'm going both ways on this one.

On one hand, Spring is not earned until next year, so I could see that as having to be a Deferred Revenue liability.

On the other hand, could one say that the entire 2014 - 2015 tuition is earned at the beginning of the school year?

Is there any guidance for recognition of tuition? I haven't found any.

Thank you!

 

[Counterofbeans]

Should the Spring semester be recorded as Deferred Revenue?

Yes.

FALL should be deferred as well, as services haven't been rendered yet. You can only record revenue when services have already been rendered. You haven't rendered all of Fall services on the first day of school.

I.E. when I bill a student; should be entry be:

Dr. A/R - $10,000
Cr. Tuition Revenue - $10,000

Or:

Should it be:

Dr. A/R - $10,000
Cr. Tuition Revenue - $5,000
Cr. Deferred Revenue - $5,000

Neither. As discussed above, all should be deferred until services have been performed. I would probably relieve the deferred revenue account on a monthly basis, AFTER services for such month have been performed/rendered.

On the other hand, could one say that the entire 2014 - 2015 tuition is earned at the beginning of the school year?

No

 

[Richard Sotiros]

In practice, I have seen the entire tuition fee booked to deferred (or unearned) revenue. Revenue is then recognized ratably over the course of the term. So, in this example, $5,000 for a semester and to make it easy, a semester is 5 months, then revenue is recognized at $1,000 per month. My question to anyone out there is if they know of any written authority on this method.