mengxu

when unearned revenue is present - as in the Microsoft case presented - company has some reserve built up. It is not showing those in the current account, but much like a squirrel keeping nuts in storage for winter - they have the ability to extract the 3.5 Billion in reserves and show it as revenue in a future period, when e.g. they had poor sales.

So if there are large increases in the Unearned Revenue account - as an analyst - do not look directly at the Revenue number.

Look instead at what is being shown as Revenue, and how the Accounts receivables and Unearned Revenue accounts have changed between the two reporting periods.

If Accounts receivables (after adjustment for Doubtful accounts) has increased - again this is not really cash available as revenue to the company.

If Unearned revenues has decreased -> this really is indicating that the company has used its stored reserves, since the sales figure this period was low.

To accurately calculate what was actually received, calculate the Cash collected from Customers figure.

Cash Collected from Customers = Revenues - Delta AR + Delta Unearned Revenue

Look at both Change in AR and Change in Unearned Revenue with their correct signs.

CP