Uses for Deferred Revenues

Deferred Revenue involves invoicing customers in advance of goods or services being delivered. This allows the cost impact to be spread over several periods during which they are deemed to have occurred for greater accounting accuracy. Examples include 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 as normal, allocate it to a Balance Sheet Deferred Revenue Account, and complete the receipt of payment, without interrupting the Customer Credit Term conditions.
2. Set up periodic journals for the income and spread it evenly to:
   • The respective General Ledger Revenue and BI Accounts.
   • 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 cancel any remaining Deferred Revenue transactions later from a nominated point in time.

See:

Deferred Revenue Journals (7.7) - AIQ Academy 

Set up as many Balance Sheet Deferred Revenue Accounts needed to report on different Deferred Revenue types. For example, SaaS Licenses, Annual Maintenance, and Deposits Received could all have their own 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 listing grid. 

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

1. 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:

Managing General Ledger Accounts 

If you receive a Customer Invoice in advance of providing the goods or services:

1. Enter the Sales Invoice as normal against the General Ledger Deferred Revenue Balance Sheet Account. See Creating Sales Item Invoices for more details.
2. Proceed, as normal, to the system's Receipts & Allocations function. Alternatively, 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. See Using Sales Receipts and Allocations or Creating Sundry Bank Receipts.

Foreign Currency Customers

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.

1. Go to GL > Journal Manager and select Deferred Revenue.
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. 
   • 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.
   • 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. 
   • 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 Account: This will be the account of the transaction selected above.
   • BI Code: Select one or more.
   • Line Description: This will be the description for the transaction selected above.
   • 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.

Cancel a Deferred Revenue Posting

1. Create a sales transaction for the amount you want to cancel against the Deferred Revenue GL Account using one of the following:
   • Credit Note
   • Bank Sundry Payment: If the Deferred Revenue transaction was by way of a Bank Receipt and the funds will be returned to your Bank Account.
   • Credit Journal: If the funds will not be returned to your Bank Account.
2. Go to GL > Journal Manager > Deferred Revenue. Use the transaction to spread the Cancelling Amount across the number of Periods you require, following the instructions outlined earlier. 

Amending 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. 

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

In some cases, it is better to cancel the deferred revenue as described earlier and then enter a revised Deferred Revenue rather than using the Transaction Browser and attempting to amend each of the spread Deferred Revenue Transactions, Contras, and Balance Sheet postings. 

Report Manager

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. 

See 

Using the Report Manager.