You just joined a company whose main monetization mechanism is a subscription model: customers pay a monthly subscription fee for the use of the company’s product. As in all subscription models the monthly fees are inversely related to the subscription length (the longer you commit to the subscription, the lower the monthly fee). And the fees are generally charged on a monthly basis with the charge date being the same day as the sign-up date each month (there are customers who want to make prepayments for several months but they are only a small subset). Customers are free to end their subscription anytime they choose as long as they pay up their committed subscription (if they sign up for a 3 month subscription they can leave month 2 as long as all 3 months are paid for).

Here comes the fun part: you joined the company in early January 2017 and discovered the previous accountants did you a solid by booking revenue on a cash basis. They finished the month-end close for December 2016 and handed off the accounting to you in January. You also determine that you can only rely on the following facts for the existing customers:

As of December 31 2016 you have 26,800 customers with average ARPU of $150. Their signup dates vary but you can assume hey are evenly distributed throughout the month. The monthly churn is 5% (percentage of customers dropping out).

Now you are in early March and you have two months’ worth of cash receipt from NEW customers (not including the existing customers as of December 31)—see attached excel details for January and February.

The question:

What accounting entries would you make for the order to cash cycle for December (if you decided no entry is necessary for December, elaborate why), January and Februay?

Provide a brief memo to show your thinking process. Please show your excel work as well.

• 1499764162-Accounting Case Study Narrative.docx
• 1499764170-Accounting case study.xlsx

SuperTutor

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Status NEW Posted 11 Jul 2017 09:07 AM My Price 20.00

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