 Oh, and welcome to this session in which we'll discuss accounting for non-refundable upfront fees. What are those non-refundable upfront fees? Simply put, they are advanced payment by customers for goods and services. Example would include activation of the internet phone service or cable. So when you want to activate your AT&T line on your iPhone, what's going to happen is there's like 20, $25 or a $30 fee that's non-refundable. Or if you join a gym, for example, I am part of LA Fitness and as a result, there is an activation fee. Now, sometimes you can negotiate with them, but it wasn't a good time when I joined. It was right post COVID, so they were not budging. So there's an activation fee and it's a non-refundable. That's different than the other goods and services you're going to be paying for, for example, your membership. So when you pay this advanced payment, well, how do we treat advanced payment if there is a payment and the company did not provide the service yet? The company is supposed to book this as unearned revenue. Remember, we're going to debit cash and we're going to credit unearned revenue. So how to treat this unearned revenue? What's going to happen is this, we're going to include the unearned revenue in the transaction price. So whatever cash we received for this transaction, we are going to include it as part of the transaction price, then allocate, then allocate the money, allocate the fund through the, for various performance obligation and the contract. So we're going to look at this amount. We're going to include the amount in the transaction price, then allocate part of that money as we perform our obligation. The best way to illustrate this concept is to actually look at an example. Before we look at an example, I would like to remind you whether you are a student or a CPA candidate to take a look at my website, farhatlectures.com. I don't replace your CPA review course. I don't replace your accounting course. I can be a useful addition, supplemental material, lectures, multiple choice, true, false exercises that will supplement your accounting courses. Or if you're studying for your CPA, I have CPA supplemental resources specifically for Becker, Wiley, Roger, Gleam and Myles. So it's very easy to go back and forth between my material and your material. I also provide you access to 1500 previously released AI CPA questions with their original format. If you have not connected with me on LinkedIn, please do so. Take a look at my LinkedIn recommendations like this recording, share it with other, connect with me on Instagram, Facebook, Twitter, Reddit. And recently I started a group me account CPA exam support group. Please join us for CPA discussion with other candidate. Let's take a look at this example to illustrate the concept. Adam signs a one-year contract with LA Fitness Health Club. Adam to pay an unrefundable initiation fee of $50 and to pay a monthly membership of $35. So $50 upfront and $35 a month. Now, LA Fitness estimates that customers remain two years as members before they terminate their membership. What does that mean? It means they think on average, based on the record, on average, the customer stays there for two years and you paid them upfront $50. So how are we going to treat this $50? Although it's not refundable, initially we will book it as unearned revenue. Why? Because we did not provide any service yet. Although it's not refundable, but remember revenue will have to follow the actual obligation. We did not satisfy any obligation yet. So how are we going to spread this $50? Here's what we're going to do. We're going to add the $50 to the expected price. The expected price, which is the price is $35. And we're going to allocate the total over the period of two years. So simply put, we said each customer will stay for two years, which is on a monthly basis 24 months. And the membership is $35. So 35 times 24 plus $50, the whole contract is $890. Now what do we do now? We're going to take the whole contract, which is $890, and we're going to divide it by 24, which is it's going to be our revenue per month, our revenue as far as the gym. Why? Because now we are earning this $50 over a two-year period. Simply put, simply put, I showed you the whole thing because sometimes the contract could be different. But simply put, what we did is we took the $50 and divide the $50 by 24 months, and we're going to be earning $2.80 from the $50. But here's what we're going to do. When we pay our membership, we pay only $35. LA Fitness would only record $38. LA Fitness will debit, will start to debit unearned revenue, and they will debit $2.08 of unearned revenue. Then they will credit membership revenue for the whole revenue is $37.08. Therefore, we spread the nonrefundable fee over the life of the contract. Now, if the person leaves earlier, let's assume the person left earlier, immediately unearned revenue will turn into revenue. Why? Because we satisfied our obligation, that person left because it's nonrefundable. Now we can count it as revenue. Otherwise, we're going to take the unearned revenue, the upfront fees, and split it over the split, the unearned revenue, or spread out over the period that we service. What should you do now? Go to farhatlectures.com, work MCQs, and look at other resources, true, false, multiple choice, additional exercises that's going to reinforce those concepts. Take your accounting education seriously. Don't shortchange yourself. Give farhat lectures a try. If it's helping you with your CPA exam, with your accounting courses, you keep. If not, you cancel, not the end of the word. Good luck, study hard, and of course, stay safe.