As previously discussed in my blog on February 4, 2016 the California Department of Business Oversight has hired eighteen new examiners. In the past several months, I have seen several deficiency letters from these examiners. One thing that keeps coming up for those that bill in advance.
When calculating your Minimum Financial Requirements (MFR) calculation you are required to maintain your books on an accrual basis. So when you receive payment in advance, those dollars need to go into an “unearned revenue” account. Then at the end of every month, those funds can then be transferred into revenue.
As I am not an accountant, I am not sure exactly how to accomplish this, but I will say that this may affect your MFR calculations creating a deficiency. Take a look at how you are calculating your MFR and make any necessary adjustments.