Deferred Revenue is a liability because it refers to revenue that has not yet been earned, but represents products or services that are owed to the customer. As the product or service is delivered over time, it is recognized as revenue on the income statement. When the deferred revenue becomes earned, an adjusting entry is prepared that will debit the Unearned Revenues or Deferred Revenues account and will credit the Sales Revenues or Service Revenues account. Users can enable Deferred Revenue on a per item basis. Additionally, revenue cannot be deferred for items with Lifetime Subscription Plans.
Set Up Deferred Revenue
From the Item record, Click the Edit action. The Edit Item modal will open.
Scroll down to the Deferred Revenue section and Check the Defer Revenue checkbox. This will initiate the Deferred Revenue Recognition Rules.
If it is a ticket, the Defer Revenue Checkbox also needs to be checked on the Ticket Type.
In the Deferred Revenue Account field, Select the desired GL Account that the the Deferred Revenue will be related to. The GL Account for Deferred Revenue/Income, like all GL Accounts, is created and maintained on the related Business Group record.
Select a Revenue Recognition Rule from the corresponding picklist. You will have the following options:
Over Time: Select this value to recognize revenue over a period of time. This value is most often used for Subscriptions. If the Revenue Recognition Rule is set to Over Time, then you MUST select one of the following Revenue Recognition Term Rules from the picklist:
No Partial Credit: The first month’s revenue is recognized on the last day of the month for the duration of the term, regardless of the day it was purchased. For example, if an annual membership is purchased in January, the first revenue recognition entry is made on January 31st.
Flex Day: Revenue is recognized in the first month as long the purchase is on or prior to the Flex Day of the Month. For example, if a membership is purchased on January 7, but the Flex Day is set to 5, the first revenue recognition entry will not occur until the last day of the following month, February 28/29.
Daily: Revenue is recognized on the last day of the month, but is calculated based on the total cost of the item divided by 365. For example, if a $1,200 annual membership is purchased and paid for on January 15, then the first credit to the revenue account is made for $55.89 on January 31.
Specific Date: Revenue is recognized on a specific day of the year. This is most often used for Event items. If Specific Date is selected as the Revenue Recognition Rule, then you MUST have a value in the Revenue Recognition Date field. This will be the date the system is to recognize revenue.
Deferred Revenue is now configured on the selected item.