Financial Accounting Issues Arising For Operators
Prepaid services pose a number of challenges for the accountants at the mobile phone operator.
The financial statements for the company must treat prepaid services differently from their postpaid services. When a user makes a top up payment, it may not be declared immediately as revenue for the business. Instead it is treated as deferred income and only enters the accounts as income once services are actually consumed. The sum of the unused balances from all customers effectively is treated as a liability in the balance sheet.
Another issue is the treatment of VAT for operators in the European Union. Typically a prepaid top up will attract VAT in the home country at the point of sale. However, roaming calls made between countries in the EU are treated as a trade in services between EU members and hence attract zero-rate VAT. Especially in Eastern Europe, the operators always communicate the balance excluding VAT to their customers.
Sometimes the operators proposition itself has unintended side effects on the financial statements. For example, the top up rewards described above encourage frequent top up. However competition between operators in some cases has pushed rewards to the point where a customer can get the majority of their calls and text free by topping up a certain amount each month. This makes it harder for a user to "burn through" their balance and allow the top up revenue to actually enter the operator's books as revenue.
Read more about this topic: Prepaid Mobile Phone
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