Governments receive revenue from a number of different sources, including exchange transactions. Generally, revenue from exchange transactions should be recognized when an exchange, in the ordinary course of operations, is affected, unless the circumstances are such that the collection of the exchange price is not reasonably assured. Accordingly, revenues from exchange transactions should generally be accounted for at the time a transaction is completed, with an appropriate provision for uncollectible accounts.
As individuals and businesses work to respond to and recover from the COVID-19 pandemic, governments must understand additional considerations when it comes to the collectability of receivables. For example, customers’ ability to pay their utility bills on time may be affected as millions of people have been furloughed or have otherwise experienced a loss of employment. As a result, during the coronavirus crisis, collections may be significantly delayed or reduced. Governments should record and track its customer accounts receivables (AR) when billed for a provision of uncollectible amounts, and this provision should take into account the current financial health of the customer base.
To assist customers during this difficult time, some utility providers have ceased service shut-offs for unpaid bills for a specified time period, or have stopped applying late fees or penalties for late payments. As governments evaluate the payments they expect to receive from customers to record the provision, remember to consider not only a customer’s ability to pay, but also these payment accommodations that are assisting residents and families. Additional write-offs that stem from the current environment may become recoverable once we begin to financially recover from COVID-19, and customers return to normal employment. The collections on old charged-off receivables would be recognized in the year they are recovered.
Similar consideration should be given to other types of receivables, such as taxes, notes or loans. Additional guidance on the recognition and reporting of revenues and receivables can be found in the Governmental Accounting Standards Board (GASB) Codification Section 1600 paragraphs .104-.106, Section L30 paragraph .121, and Section N50 paragraphs .113-.116, .118 and .123.
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