Deferred Revenue & Expense

The money that you received in advance for the goods or services which is not delivered or completed can be calculated as deferred revenue. It is not possible to report this money in your income account since the status of the money is still received not earned. The status will not change to revenue or income unless and until the delivery or service is completed. This amount can be reported as a liability. In the Accounting module, the option to record the details of such deferred revenues can be seen under the Accounting menu.

Before creating a new deferred revenue record, you can create a new Deferred Revenue Model for it from the Configuration menu. By doing so, you can group similar deferred revenues under a model. Go to the Management tab of the Configuration menu where you can find the Deferred Revenue Models option. The window shows already configured models with the details regarding the Revenue Name, Revenue Account, Deferred Revenue Amount, Number of Recognitions, and Period Length.

Configurations

Before you begin, you need to configure the deferred revenue & expense in the setting first.

Enable Setting

Make sure the default settings are correctly configured for your business. To do so, go to Accounting ‣ Configuration ‣ Settings. The following options are available:

Chart of Accounts

Set up your chart of accounts to properly track deferred revenue and ensure accurate revenue recognition over time.

---

Step 1 — Navigation

From the top navigation menu, click Accounting. Then from the dropdown menu, select Chart of Accounts.

Once you navigate to Chart of Accounts, you will see the master list of all existing accounts. The list displays the following columns:

1. Code – The unique account code assigned to each account (e.g., 200201).
2. Name – The descriptive name of the account.
3. Type – The account classification (e.g., Bank and Cash, Current Liabilities, Receivable).
4. Account Currency – The currency used for transactions in this account.

---

Step 2 — Create

Click the Create button at the top-left of the Chart of Accounts page to open a new blank account form.

---

Step 3 — Check Deferred Account

The new account form will open. Fill in the following required and optional fields to create your deferred revenue account:

1. Name (Required) – Enter a descriptive name for the account (e.g., "Tuition Fee Collected").
   
2. Code (Required) – Assign a unique account code. For liability accounts, use codes in the 200000-299999 range (e.g., 200201).
   
3. Type (Required) – Select Current Liabilities from the dropdown. This classifies the account as a liability to be settled within one year.
   
4. Account Group (Optional) – Select an account group to organize related accounts together.
   
5. Deferred Account (Required) – Check this box to enable the account for deferred revenue tracking. This allows the system to automatically generate deferred entries and recognition schedules.

Other Info

Under the Other Info tab, configure the following optional settings:

1. Tags – Add tags to help categorize and filter the account in reports.
   
2. Account Currency – Select the currency for this account (e.g., USD). Defaults to your base currency.
   
3. Internal Type – This is automatically set to Regular for standard accounts.
   
4. Allow Reconciliation – Check this box if you need to reconcile transactions in this account.
   
5. Inactive – Check this box to deactivate the account without deleting it.

---

Step 4 — Save

After completing all required fields, click Save to create the deferred revenue account. The account is now ready to be used in customer invoices and deferred revenue transactions.

Deferred Revenue

Create a customer invoice with deferred revenue to properly track unearned revenue that will be recognized over a specified period.

---

Create Deferred Invoice

Step 1 — Go to Customer Invoices

From the left sidebar, click Accounting. Then from the top navigation menu, go to Customers ‣ Invoices.

---

Step 2 — Create

Click the Create button at the top-left of the Invoices list page to open a new blank invoice form.

---

Step 3 — Fill Out the Invoice Header

Fill in the customer details and invoice information in the header section:

1. Customer (Required) – Search and select the customer receiving the invoice.
2. Reference (Optional) – Enter an internal reference (e.g., "Tuition Fee").
3. Invoice Date – The date the invoice is issued (defaults to today).
4. Payment Terms – Select the payment terms (e.g., "Immediate Payment").
5. Journal – Select the appropriate journal (e.g., "Customer Invoices (USD)").

---

Step 4 — Add a line

Under the Invoice Lines tab, add the products or services with deferred revenue tracking:

1. Product – Select the product or service being invoiced.
   
2. Description – The description will auto-populate but can be modified.
   
3. Account (Critical) – Select the deferred revenue account you created earlier (e.g., "200201 Tuition Fee Collected"). This account must have the Deferred Account checkbox enabled. Let's see how to setup this Chart of Account
   
4. Quantity – Enter the quantity (typically 1.00 for service-based items).
   
5. Period – Enter the number of periods for revenue recognition (e.g., 6 for 6 months).
   
6. Period Interval – Select the interval for recognition (e.g., "Month" for monthly recognition).
   
7. Date From – Enter the start date for revenue recognition (e.g., 10/01/2026).
   
8. Price – Enter the total price for the service or product.

---

Step 5 — Save

Click Save to save the invoice as a Draft. Review all details carefully before posting.

---

Step 6 — Post

Once you have confirmed all details are correct, click the Post button to officially post the invoice. This will:

• Change the invoice status from Draft to Posted – Assign a permanent invoice number (e.g., INV/2026/0008)
• Record the invoice amount to the deferred revenue liability account
• Create a deferred transaction schedule for automatic revenue recognition

---

Step 7 — View Deferred Transactions

After posting, you can view the automatically generated deferred transaction schedule:

1. Click Accounting from the top navigation menu
2. Under Management, select Deferred Transaction

The deferred transaction list shows all scheduled revenue recognition entries:

• Journal Item – The source invoice and description
• Deferred Date – The date each portion of revenue will be recognized
• Account – The deferred revenue account
• Balance – The amount to be recognized on each date
• Status – Current status (Draft until recognized)

Recognize Deferred Revenue

Process deferred transactions to recognize revenue according to the scheduled timeline established when the invoice was created.

---

Step 1 — Navigate to Deferred Transactions

From the top navigation menu, click Accounting. Under the Management section, select Deferred Transaction.

---

Step 2 — Create Deferred Entry

After selecting the transactions to recognize, click the Action button at the top of the list, then select Create Deferred from the dropdown menu.

---

Step 4 — Validate

A confirmation dialog will appear showing:

• Journal – The journal where entries will be posted (e.g., "Miscellaneous Operations (USD)")
• Cut Off Account – The deferred revenue liability account being reduced
• Separate Entry – Whether to create separate journal entries for each transaction
• Transactions – Summary of the selected transactions with debit/credit amounts

Review the information carefully:

• Debit column shows $0.00 (no debit to the deferred account)
• Credit column shows the recognition amounts (e.g., $80.00 each)
• Balance shows the negative liability reduction (e.g., -$80.00)

---

Step 5 — Verify Recognition Completed

After validation, you'll be taken to the deferred transaction detail page showing:

• Reference – The transaction reference
• Journal – The journal used for posting
• Cut Off Account – The deferred account that was reduced
• Separate Entry – Confirmation that entries were created separately
• Status – Changed from Draft to Done

---

Reporting

View Deferred Revenue Report

Under the Reporting tab in the top navigation bar, a dropdown menu lists various financial reports. Select the Deferred Revenue option is highlighted with a red box.

View Balance Sheet Report

Under the Reporting tab in the top navigation bar, a dropdown menu lists various financial reports. Select the Balance Sheet option is highlighted with a red box.

Deferred Expense

Deferred expenses and prepayments (also known as prepaid expenses) are both costs that have already occurred for products or services yet to be received.

Such costs are assets for the company that pays them since it already paid for products and services but has either not yet received them or not yet used them. The company cannot report them on the current profit and loss statement, or income statement, since the payments will be effectively expensed in the future.

---

Create Deferred Expense

To create a deferred expense, you will create a vendor bill and assign a deferred expense account to the line item. The system will automatically generate a deferred transaction schedule for recognition over time.

Let's see how to create a deferred expense with an example of a $240 payment for a 12-month AI subscription, where $20 will be recognized as an expense each month.

---

Step 1 — Go to Vendor Bills

From the left sidebar, click Accounting. Then from the top navigation menu, go to Vendors ‣ Bills.

---

Step 2 — Create

Click the Create button at the top-left of the Bills list page to open a new blank bill form.

---

Step 3 — Fill Out the Bill Header

Fill in the vendor details and bill information in the header section:

1. Customer (Required) – Search and select the customer receiving the invoice.
2. Reference (Optional) – Enter an internal reference (e.g., "Tuition Fee").
3. Invoice Date – The date the invoice is issued (defaults to today).
4. Payment Terms – Select the payment terms (e.g., "Immediate Payment").
5. Journal – Select the appropriate journal (e.g., "Customer Invoices (USD)").

---

Step 4 — Add a line

Under the Invoice Lines tab, add the products or services with deferred revenue tracking:

1. Description – The description will auto-populate but can be modified.
   
2. Account (Critical) – Select the deferred expense account you created earlier (e.g., "604000 Digital Service Expense"). This account must have the Deferred Account checkbox enabled.
   
3. Quantity – Enter the quantity (typically 1.00 for service-based items).
   
4. Period – Enter the number of periods for revenue recognition (e.g., 12 for 12 months).
   
5. Period Interval – Select the interval for recognition (e.g., "Month" for monthly recognition).
   
6. Date From – Enter the start date for revenue recognition (e.g., 01/03/2026).
   
7. Price – Enter the total price for the service or product.

---

Step 5 — Save

Click Save to save the invoice as a Draft. Review all details carefully before posting.

---

Step 6 — Post the Bill

Once you have confirmed all details are correct, click the Post button to officially post the bill. This will:

• Change the bill status from Draft to Posted – Assign a permanent bill number (e.g., BILL/2026/0001)
• Record the bill amount to the deferred expense liability account
• Create a deferred transaction schedule for automatic revenue recognition

---

Step 7 — View Deferred Transactions

After posting, you can view the automatically generated deferred transaction schedule:

1. Click Accounting from the top navigation menu
2. Under Management, select Deferred Transaction

The deferred transaction list shows all scheduled revenue recognition entries:

• Journal Item – The source bill and description
• Deferred Date – The date each portion of revenue will be recognized
• Account – The deferred revenue account
• Balance – The amount to be recognized on each date
• Status – Current status (Draft until recognized)

Recognize Deferred Expense

Process deferred transactions to recognize revenue according to the scheduled timeline established when the invoice was created.

---

Step 1 — Select Transactions to Recognize

Check the boxes next to the deferred transactions you want to recognize. You can:

• Select individual transactions
• Select all transactions due on or before a specific date
• Select all transactions within a date range

After selecting the transactions to recognize, click the Action button at the top of the list, then select Create Deferred from the dropdown menu.

---

Step 2 — Review and Validate

A confirmation dialog will appear showing:

• Journal – The journal where entries will be posted (e.g., "Miscellaneous Operations (USD)")
• Cut Off Account – The deferred revenue liability account being reduced
• Separate Entry – Whether to create separate journal entries for each transaction
• Transactions – Summary of the selected transactions with debit/credit amounts

---

Step 3 — Verify Recognition Completed

After validation, you'll be taken to the deferred transaction detail page showing:

• Reference – The transaction reference
• Journal – The journal used for posting
• Cut Off Account – The deferred account that was reduced
• Separate Entry – Confirmation that entries were created separately
• Status – Changed from Draft to Done

---

Reporting

View Deferred Expense Report

View Balance Sheet Report