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How to calculate cash to accrual adjustment for deferred revenue?

Deferred revenue (liability) will be increased when the company collects cash from customers related to revenue that cannot be recognized (i.e., unearned as performance obligations have not been satisfied). Deferred revenue will be decreased when the company recognizes revenues that was previously categorized as unearned revenue.

On the exam, you could be asked for the amount of cash collected that is related to unearned revenue or the amount of revenue recognized that were previously unearned. For example, if the beginning balance was $500 and the ending balance was $350, and the question told you the company collected $250 of cash from customers that was for deferred or unearned revenue, then you would know that the company was able to recognize $400 of deferred revenue during the period.


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