Deferred Revenues

Deferred revenues, or unearned revenue, are payments made in advance by customers for products yet to deliver or services yet to render.

Such payments are a liability for the company that receives them since it still owes its customers these products or services. The company cannot report them on the current Profit and Loss statement, or Income Statement, since the payments will be effectively earned in the future.

These future revenues must be deferred on the company’s balance sheet until the moment in time they can be recognized, at once or over a defined period, on the Profit and Loss statement.

For example, let’s say we sell a five-year extended warranty for $ 350. We already receive the money now but haven’t earned it yet. Therefore, we post this new income in a deferred revenue account and decide to recognize it on a yearly basis. Each year, for the next 5 years, $ 70 will be recognized as revenue.

Flectra Accounting handles deferred revenues by spreading them in multiple entries that are automatically created in draft mode and then posted periodically.

Note

The server checks once a day if an entry must be posted. It might then take up to 24 hours before you see a change from draft to posted.

Prerequisites

Such transactions must be posted on a Deferred Revenue Account rather than on the default income account.

Configure a Deferred Revenue Account

To configure your account in the Chart of Accounts, go to Accounting ‣ Configuration ‣ Chart of Accounts, click on Create, and fill out the form.

Configuration of a Deferred Revenue Account in Flectra Accounting

Note

This account’s type must be either Current Liabilities or Non-current Liabilities

Post an income to the right account

Select the account on a draft invoice

On a draft invoice, select the right account for all the products of which the incomes must be deferred.

Selection of a Deferred Revenue Account on a draft invoice in Flectra Accounting

Choose a different Income Account for specific products

Start editing the product, go to the Accounting tab, select the right Income Account, and save.

Change of the Income Account for a product in Flectra

Change the account of a posted journal item

To do so, open your Sales Journal by going to Accounting ‣ Accounting ‣ Sales, select the journal item you want to modify, click on the account, and select the right one.

Modification of a posted journal item's account in Flectra Accounting