USA Barter Transaction

[Alkaline]

Question related to barter transaction. Mainly, around WHEN you record the revenue associated with your asset/service in the event that the asset/service you receive will not be until future months. I understand that you setup an asset account to hold the barter "credit" however, if you recognize the revenue of your asset traded immediately there would be a disconnect between the Income/Expense if you reserve asset/services in future periods.

 

[kirby]

You are correct. The matching principle of accounting is there to avoid a disconnect between income and expense. So in your case you would defer recognition until that future period.

 

[Alkaline]

So in that case we would be essentially creating two balance sheet accounts? An asset account for the Barter credits (DR) and a liability account to hold the deferred revenue.

 

[kirby]

Yup

 

[Alkaline]

So how would you handle the COGS? If you are not recognizing the revenue or expense until a later date, where do you park the COGS since you need to physically remove the inventory in a prior period?

 

[kirby]

To make sure I am on the same page with you, can you describe the barter transaction in more detail?

 

[Alkaline]

Trading physical manufactured inventory goods for Advertisement Time.

 

[kirby]

Now that I see the detail, you are paying for advertising by giving up inventory instead of paying in cash.

when you give the inventory
Dr Prepaid Expense (Asset acct)
Cr Inventory

when your advertisement runs
Dr Advertising Expense
Cr Prepaid Expense (Asset acct)

 

[Alkaline]

Now that I see the detail, you are paying for advertising by giving up inventory instead of paying in cash.

when you give the inventory
Dr Prepaid Expense (Asset acct)
Cr Inventory

when your advertisement runs
Dr Advertising Expense
Cr Prepaid Expense (Asset acct)

Thanks Kirby,

The issue I am having with your suggestions are,
1) The fair market value of the received ad value should be recognized as Revenue/Income. This is not happening in your above suggestion.
2) There needs to be COGS entry to capture the costs of the inventory item supplied in the barter trade that matches the revenue recognition.

Thoughts?

 

[kirby]

From what I have since learned: the seller records the barter as a sale of the seller's item. Example: if the seller gave rent of a space in exchange for goods, the seller records rental income. The debit is the receipt of whatever the seller got: Merchandise, prepaid assets like future advertising, and so on.

Example: You give up Inventory with a cost of $900 for Future Advertising with FMV of $1,000.

DR Prepaid Advertising (Asset) $1,000
CR Barter Sales Revenue <$1,000>

DR Cost of Sales $900
CR Inventory <$900>

Then when advertisement runs in future period:
DR Advertising Expense $1,000
CR Prepaid Advertising (Asset) <$1,000>