Accounting Treatment for Deferred Revenue

CFA Level II FRA
#1

Hey Everyone,

I recently came across a question " How is the balance sheet affected when companies allow customers to purchase gift cards, add cash to phone apps or online applications to purchase products in stores?"

I understand these are recognized as deferred revenue. But I am not sure of obvious examples for adding cash to phone apps or online applications to purchase products in stores. Has anyone come across examples for these types of transactions?

Gift card examples are easy to find, but the other two I am struggling finding examples. I was thinking any gaming system will allow you to load cash and use your prepaid balance to buy digital game downloads and add-ons. But I can’t think of a good example for “online applications to purchase products in stores.”.

Any thought would be greatly appreciated.

#2

Those should fall under the gift card example. Deferred revenue would be used more when a sale occurs and the customer prepays for the subscription period. For example, if Apple sells an annual subscription for $120 they will recognize $10 of revenue in the first month and add $110 of deferred revenue to the balance sheet. If Apple puts $120 into a prepaid account, $120 will end up in the gift card line item on the balance sheet until the customer buys something.