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Why does Zynga defer the recognition of its revenue?

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Why does Zynga defer the recognition of its revenue?

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It turns out that as fantastic a description of revenue recognition and deferral as Garrick’s answer is, it’s not really what’s going on at Zynga. Zynga uses a non-GAAP measure called “Bookings” in it’s accounting (nothing wrong with this by the way) that is basically “all the money we’ve collected”. It then prudently defers a portion of that revenue. So why you ask? Well, it turns out people buy all sorts of virtual goods in a Zynga game. Some of those are very short-term consumable items and what Zynga calls longer term durable items. I’ll let Zynga describe it: The proceeds from the sales of virtual goods are initially recorded in deferred revenue. We categorize our virtual goods as either consumable or durable. Consumable virtual goods, such as energy in CityVille, represent goods that can be consumed by a specific player action. For the sale of consumable virtual goods, we recognize revenue as the goods are consumed. Durable virtual goods, such as tractors in FarmVille, represent

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Great question. Deferred revenue is based on the accounting concept of recording revenue in the period in which it was earned, regardless of when money was collected. Let’s step into the real world for a moment. You go to your favorite department store and buy a gift certificate. They collect your $100 and hand you a piece of paper. That transaction is recorded as a liability to the company, in the same general area deferred revenues are recorded on the balance sheet. The merchant cannot record it as revenue, because they really haven’t given anything of value in return for your $100, just a piece of paper. If they provided nothing in return, that might be called stealing, in some circles. In short, it is clearly a liability, not a sale. You owe the customer either 1) $100 back or 2) $100 worth of product or service. Now, you give that gift certificate you just bought to dear old mom for her birthday. She goes to the store and buys herself that new dress she’s been eyeing for a while,

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