Deferred Revenue
Deferred revenue refers to advance payments a Company receives for products or services that are to be delivered or performed in the future.
It is also known as unearned revenue.
When a company receives a prepayment, the amount is recorded as Deferred Revenue on their balance sheet, classified as a liability. Deferred revenue represents revenue that has not yet been earned, indicating products or services owed to a customer. As the product or service is provided over time, it is recognized as revenue on the income statement.
1. Configuring Deferred Accounting
2. How to use Deferred Revenue
Internet and broadcasting service providers often provide subscription plans on a quarterly or yearly basis. They typically receive full payment in advance from the customer for several months but recognize income on a monthly basis in their accounting records. This arrangement results in Deferred Revenue for the supplier and Deferred Expense for the customer. Below is the configuration process for Deferred Revenue accounting in BizCentric to streamline this process.
2.1 Item
Within the Item master established for the subscription plan, navigate to the Deferred Revenue section and enable the “Enable Deferred Revenue” checkbox. Additionally, you can designate a Deferred Revenue account for this specific item and specify the duration in months.
2.2 Sales Invoice
When generating a Sales Invoice for the Deferred Revenue Item, rather than recording the transaction in the Income Account, the sale amount is credited to the Deferred Revenue account. If you previously configured the account and period in the Item settings, the account and service start and end dates will be automatically retrieved.
2.3 Journal Entry
Based on the From Date and To Date set in the Sales Invoice Item table, Journal Entries are created automatically at the end of each month. It debits the value from Deferred Revenue account and credits Income Account selected for an Item in the Sales Invoice.