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The Berkman Letter Practical analysis and commentary for business, law, and more.
The contract is a 3 year contract with 3 one-year automatic renewals - payment for a full year due at the beginning of each year of the contract. The renewal periods can be canceled with no penalty upon notice from the customer at least 30 days before the renewal period begins.
Treat the auto-renewal periods as unbooked contracts due to the customer's right to cancel the auto-renewal periods for any reason. Assuming the first 3 years of the contract are not cancelable without cause, you should book the expected revenue for that period as deferred revenue and recognize it appropriately over the period (depending on the nature of the product or service provided under the contract). The auto-renewal periods should not be booked as deferred revenue until the customer's right to cancel has passed (within 30 days of the auto-renewal period).