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Deferred income

Question asked by Naomi Liddle 5 years ago

Hi

How would you best advise dealing with deferred income? Eg if we invoice a customer for an annual subscription and want to spread the money across 12 months. I know there is a deferred revenue account but I'm a but rusty on how to process it!

Thanks

11 Replies

A pain quite frankly. Is this likely to be for a lot of invoices?

Let's say you've invoiced £1200 on the 1st of Jan. On that same day you would create a journal, you'd DR sales with £1100 and CR def revenue with £1100. That would leave your Jan P&L showing a sale of only £100 i.e. 1/12 of the total invoice and the other £1100 would be sitting in the def revenue account. You'd then need to create 11 further monthly journals from 1st Feb onwards to move £100 back from def revenue into sales (you'd DR def rev this time and CR sales). You P&L would then show £100 sales each month and the def revenue account would slowly zero off.

Unfortunately there's no automatic process to achieve the above so you're going to have to create each one manually - a huge time sink if you've got lots of invoices. The best you can do is 'copy' each journal and just amend the date to the following month.

The only other way to do it would be via a recurring monthly invoice that automatically 'paid' itself to a dummy bank account called deferred revenue - it would clog up your invoice list though which can be a slight pain too.

If you wanted to defer the whole amount of the invoice you'd just switch on accrual dates but if you want to do part there or each month for management account purposes then it'll be journals i'm afraid.

Thanks for your swift reply! Yes it's for management accounts purposes - so eg. a customer pays for a year's service all at once - and we receive the money - but the revenue is in effect unearned and needs to be recognised across 12 months in the P&L.

I was wondering if anyone else has done this and could share their journal process?

A pain quite frankly. Is this likely to be for a lot of invoices?

Let's say you've invoiced £1200 on the 1st of Jan. On that same day you would create a journal, you'd DR sales with £1100 and CR def revenue with £1100. That would leave your Jan P&L showing a sale of only £100 i.e. 1/12 of the total invoice and the other £1100 would be sitting in the def revenue account. You'd then need to create 11 further monthly journals from 1st Feb onwards to move £100 back from def revenue into sales (you'd DR def rev this time and CR sales). You P&L would then show £100 sales each month and the def revenue account would slowly zero off.

Unfortunately there's no automatic process to achieve the above so you're going to have to create each one manually - a huge time sink if you've got lots of invoices. The best you can do is 'copy' each journal and just amend the date to the following month.

The only other way to do it would be via a recurring monthly invoice that automatically 'paid' itself to a dummy bank account called deferred revenue - it would clog up your invoice list though which can be a slight pain too.

Thank you! That was sort of the process I was thinking but was a bit unsure and didn't want to go to the hassle if there was a simpler way!

You've been super helpful, thanks again.

Pleasure.

As I say, you could always set-up a dummy bank a/c called deferred revenue, do the first journal to that a/c and then create a recurring monthly dummy invoice to pay itself using that bank a/c too. It would certainly speed up the process but it means you'll end up with loads of meaningless invoices when you go to Sales > All.

Hiya both - wouldn't recurring journals not handle this (in toggle features)?

Just put the invoice to the deferred revenue account and setup a recurring journal to take a 1/12th to revenue each month.

You know what Paul, you're completely right. I knew there was an easier way but for some reason didn't think CB supported recurring journals, just reversing.

Apologies Naomi, dud info from me this time i'm afraid!

Hi Guys,

Thanks Kevin & Paul for answering this so well, as usual! It's much appreciated. Just so I can feel I am adding something too, recurring journals can be activated my heading to Settings > Organisation > Toggle Features > Accounting > Recurring Journals.

Thanks

Chris

May I ask why one would need to create an invoice and set the account code to Revenue and then create a journal to move that revenue to deferred revenue when you can just set the account code as deferred revenue and save yourself a step.

That would work fine too George...

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