Introduction

Deferred Revenues and their Uses

Deferred Revenue is when a company invoices Customers in advance for Goods or Services that they will deliver over future periods. This option lets you post normal Customer Invoices or other receipts and then post them to the Deferred Revenue Balance Sheet Journals for Goods or Services not yet received or deployed. 

You can enter them into the P & L by spreading the Cost impact over several Periods during which they are deemed to have occurred. This allows for the proper accounting of an advance lump sum Billing to a Customer and the smoothing of the consequent revenues over future periods. For example, if you have a contract with a customer to deliver Maintenance or Support Services, you can process and pay the Invoice as normal, but spread the Revenue Income over several future periods. Other examples might be advance Annual Rental, advance Deposits, Licence Fees, or School Fees.

The Deferred Revenue Process

Deferred Revenue is a two-step process:

1. Process the Customer's Invoice or Charge, allocate it to a Balance Sheet Deferred Revenue Account, and complete payment, without interrupting the Supplier's Credit Term conditions.
2. Set up Periodic or monthly income and spread them evenly to each period of:
   • the respective General Ledger Revenue and BI Account(s).
   • the corresponding monthly reversals in the Balance Sheet Deferred Revenue Account.

Although you can carry out both actions independently of each other, they should occur as closely as possible. If necessary, you can later cancel any remaining Deferred Revenue transactions from a nominated point in time.

See:

Deferred Revenue Journals (7.7) - AIQ Academy 

Deferred Revenue System Accounts

To differentiate between different Deferred Revenue types during analysis reporting, set up as many Balance Sheet Deferred Revenue Accounts in your General Ledger as necessary. For example, SaaS Licenses, Annual Maintenance, and Deposits Received could all have their own Deferred Revenue Accounts.

Step One: Set up the individual GL Accounts in the General Ledger 

Set up a GL Account for Deferred Revenue purposes. If you assign a Group Code to the Account (in this example DR for Deferred Revenues) then you will be able to group them and query them in the GL Grid. 

Step Two: Allocate the GL Account as a Deferred Revenue Account

1. In the blue Banner, go to Setup > Codes Maintenance > System Accounts. 
   
   
    
2. Click Add New System Account to open the Systems Account screen. 
3. In the Account Type dropdown, select Deferred Revenue Account. 
4. In the Linked GL Account dropdown, select the associated Balance Sheet Account that you set up in step 1.
5. Click Save. 
   
   

See:

How do I Setup and Maintain General Ledger Accounts?‍ 

Processing a Customer Invoice

You can process a Customer Invoice using the Sales Invoice facilities. If you receive a Customer Invoice in advance of providing the goods or services:

1. Enter the Customer Invoice as normal to a General Ledger Deferred Revenue Balance Sheet Account. In this example, we entered a Sales Invoice to Alpine Company for Maintenance Fees for the Financial Year 2018 and posted it to a Balance Sheet Deferred Revenue Account called Deferred Income - Licence Fees (7520). 
   
   
    
2. Click Post Batch and proceed, as normal, to the system's Receipts & Allocations function.

Processing a Bank Receipt

If a customer is not involved, you can raise a Sundry Bank Receipt transaction. Post the Bank Payment to the Balance Sheet Deferred Revenue Account, not the Expense Account.

Spreading and Posting the Income against several Periods

In the General Ledger Grid, any positive Deferred Revenue amount under the GL Group column, will be in respect of:

• a new Customer Invoice or Bank Receipt.
• a Deferred Revenue Cancellation that has not yet been spread and needs to be as soon as possible.
  
  

Spreading a Deferred Revenue

1. In the blue banner, go to General > GL Deferred Revenues to open the Deferred Revenue Journal Entry screen.
   
   
    
2. In the Deferred Revenue screen, complete the following where relevant:
   • Deferred Revenues A/C: In the dropdown, select the appropriate Balance Sheet Deferred Revenue Account. Only Deferred Revenue Accounts appear.
   • Description: In the field, enter a Description of the charge that will be in the Deferred Revenue Account. 
   • Default Description to Each Line: Ticking will copy the description to each line in the lower half of the screen. 
   • Date: Select the period date from which this deferred revenue journal should be spread. This is the Date from which the subsequently generated Income Postings and Deferred Revenues Contras will start. 
   • Journal Reference: In the field, enter an appropriate Journal Reference. This Date must be on or later than the Invoice Date of the Customer Invoice (or Bank Payment) Posting. The start period number for subsequent spreading appears.
     
     
      
   • Click Select transactions to spread. Choose from a list of Bank Receipt (BR), Bank Payment (BP), Sales Invoice (SI), Sales Note (SN), Sales Debit Journal (SD) and Sales Credit Journal (SC) transactions that have been posted to the selected deferred revenue system account and that have not been previously spread across periods up to the 'Date' selected. The selected transactions will then drive the total net amount to spread. Click Save when finished.
   • Total amount to be spread: This is the total net amount available to spread across periods and GL accounts based on the chosen deferred revenue account and filtered by the transaction/s selected.
   • Spread Across: Enter the number of financial periods that the total net amount should be spread over. The system will then display the period range from and to based on the start date above and the number of periods.
   • Total to spread per period: This is the total amount to be spread per period. This amount can be spread across multiple GL a/c and BI Codes in the grid below.
   • GL Cost Account, Cost Centre: Select one or more.
   • DR Amount: Enter the appropriate monthly charge amount against each GL Account and Cost Centre until you have reached the Total to Spread per Period.
3. Click Process. In the Transaction Browser, you will now see the Current and Forward Deferred Revenue in the Deferred Revenue Account, and in the Monthly Income in the Income Accounts.
   
   
   
   
   
   

Canceling Deferred Revenues

Using Reverse to cancel a Deferred Revenue

You can only cancel Deferred Revenues for Open Periods. If you want to cancel a Deferred Revenue in its entirety and some of the periods have been closed, then you must first open the Closed Periods. If all the Periods are Open, you cancel the Deferred Revenue by using the Reverse facility. 

Using a bank payment to cancel a Deferred Revenue

You can partially cancel a Deferred Revenue. Choose the amount that you want to cancel and quote the Deferred Revenue Balance Sheet GL Code for the following cases:

• Prepare a Credit Note
• If the Deferred Revenue transaction was by way of a Bank Receipt and the funds will be returned to your Bank Account, prepare a Bank Sundry Payment.
• If the funds will not be returned to your Bank Account, prepare a Credit Journal.
  
  

Go to General > GL Deferred Revenues. Use the previous transaction to spread the Cancelling Amount across the number of Periods you require, following the instructions outlined earlier. 

Amending Deferred Revenue Amounts

Changing the value of the first or end-period

After Spreading the Revenue evenly across the chosen number of Periods, in some cases, you might want to change the value in the first or end-period because you want to treat it as a part period. 
 

In the blue banner, go to General > Transaction Browser. Use the Transaction Browser to make any required changes. Ensure that the sum of the period values after modification equals the total of the original Deferred Revenue, otherwise there will be a residual amount left in the Deferred Revenue Account at the end of the spread. 

Amending a Deferred Revenue in total

Cancel some or all the Deferred Revenue rather than using the Transaction Browser and attempting to amend each one of the spread Deferred Revenue Transactions, Contras, and Balance Sheet postings. Instead, Cancel the Deferred Revenue (where possible) and then enter a revised Deferred Revenue.

Foreign Currency Deferred Revenues

Prepare and Post the Invoice as normal. 

• The Currency Code on the Customer or Bank Account determines if a Customer Invoice or Sundry Bank Receipt will be in a Foreign Currency. 
• The Exchange Rate used will be that set up in the Currency Table. The exchange rate will be constant. 
• The Base Currency equivalent will appear at the bottom of the Invoice or Sundry Bank Receipt screen. When generating the spread transactions against the Deferred Revenue and Income Accounts, the system uses this Base Currency Amount.

Reviewing Deferred Revenue and Cancellations

In the transaction browser, you can view:

• Any previously entered Deferred Revenue which have been posted and spread
• Any Deferred Revenue Cancellations or Reversals you might subsequently have made.

In the blue banner, go to General > Transaction Browser. 

Monthly Reporting

Deferred Revenue Balance Sheet postings and their corresponding Income account Postings are spread annually (or longer) in advance. The Period Number selected in the Report filters determines which and how many of these Postings will appear in the chosen Report. Any postings with a Period No. higher than that selected for the Report will not appear in either the Current Period values or the year-to-date values.