Accounting for Fees Received in Advance from Customers
Customers who want to access certain service provider’s offerings may be required to pay a portion of the total value of the service as an up-front fee. The question for the company is how much, if any, of the advance fee should be recognized as revenue. Generally, an up-front fee provides the customer with access to services over a period of time. For example, Health Clubs frequently require a member to pay an up-front fee as well as an ongoing fee in order for the member to access their services. In this case, the up-front fee would be deferred revenue and apportioned as revenue over the length of the contractual term.
In other instances, a service provider may assess an up-front fee as ...
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