Introduction

Deferred revenue and expense are essential concepts for businesses that deal with advance payments or prepaid expenses. Properly managing these ensures accurate financial reporting, compliance with accounting standards, and efficient cash flow management. iVendNext simplifies the process of managing deferred revenue and expense through its automated features, but to maximize its effectiveness, it’s important to follow best practices. This article will guide you through the best practices for managing deferred revenue and expense in iVendNext, helping you streamline your financial processes and avoid common pitfalls.

Before implementing deferred accounting, it's important to familiarize yourself with the following settings, as they will provide you with greater control over its management.

What are Deferred Revenue and Expense?

• Deferred Revenue: Payments received in advance for goods or services to be delivered in the future. It is recorded as a liability until the revenue is earned.

• Deferred Expense: Costs paid in advance for goods or services to be consumed over time. It is recorded as an asset until the expense is recognized.

Why are Best Practices Important?

1. Accurate Financial Reporting:
   Properly managing deferred revenue and expense ensures that your financial statements reflect the true state of your business.

2. Compliance with Accounting Standards:
   Following best practices helps you comply with standards like GAAP and IFRS.

3. Efficient Cash Flow Management:
   Best practices help you avoid misrepresenting your financial position and improve cash flow management.

4. Reduced Risk of Errors:
   By following best practices, you can minimize errors in deferred accounting processes.

Best Practices for Managing Deferred Revenue and Expense

Here are the key best practices to follow when managing deferred revenue and expense in iVendNext:

1. Configure Deferred Accounting Settings Correctly

Proper configuration is the foundation of effective deferred accounting. Here’s how to set it up:

1. Automatically Process Deferred Accounting Entry:

• Enable this setting for automatic processing of deferred entries, saving time and reducing errors.

• Disable it if you prefer manual control over deferred entries.

2. Book Deferred Entries Based On:

• Choose between Days or Months for allocating deferred revenue or expense.

• Use Days for more accurate allocation or Months for simplicity.

3. Book Deferred Entries Via Journal Entry:

• Enable this option if you prefer to review and approve journal entries before posting.

4. Submit Journal Entries Automatically:

• Enable this option to automatically submit journal entries without manual intervention.

2. Enable Deferred Revenue and Expense in the Item Master

To ensure that deferred revenue and expense are tracked correctly, enable them for specific items in the Item Master:

1. For Deferred Revenue:

• Go to the Item Master, select the item, and enable Deferred Revenue.

• Select a Deferred Revenue Account (liability account) and specify the number of months for deferral.

2. For Deferred Expense:

• Go to the Item Master, select the item, and enable Deferred Expense.

• Select a Deferred Expense Account (asset account) and specify the number of months for deferral.

3. Regularly Review and Reconcile Deferred Entries

Regularly reviewing and reconciling deferred entries ensures accuracy and compliance. Here’s how:

1. Use the Deferred Revenue Report:

• Go to Home > Accounting > Reports > Deferred Revenue Report.

• Review the report to track actual and expected postings for deferred items at both the item and invoice levels.

2. Use the Deferred Expense Report:

• Go to Home > Accounting > Reports > Deferred Expense Report.

• Review the report to track actual and expected postings for deferred items at both the item and invoice levels.

3. Reconcile Accounts:

• Regularly reconcile deferred revenue and expense accounts to ensure that entries are being recognized correctly.

4. Monitor Journal Entries

Journal entries are critical for recognizing deferred revenue and expense over time. Here’s how to manage them effectively:

1. Review Automatic Journal Entries:

• If you’ve enabled automatic journal entries, regularly review them to ensure accuracy.

• Use the Journal Entry module to track and verify entries.

2. Manual Journal Entries:

• If you prefer manual journal entries, ensure that they are created and submitted on time.

• Double-check the amounts and accounts before posting.

5. Train Your Team

Proper training ensures that your team understands how to use iVendNext’s deferred accounting features effectively:

1. Provide Training on Deferred Accounting:

• Train your team on the concepts of deferred revenue and expense and how they are managed in iVendNext.

2. Share Best Practices:

• Share this article and other resources with your team to ensure consistent practices.

6. Regularly Update Settings

As your business evolves, your deferred accounting needs may change. Regularly review and update your settings to ensure they align with your current requirements:

1. Review Deferred Accounting Settings:

• Periodically review your deferred accounting settings to ensure they are still appropriate for your business.

2. Update Item Master Settings:

• If you add new items that require deferred revenue or expense tracking, update the Item Master accordingly.

7. Avoid Common Pitfalls

Here are some common pitfalls to avoid when managing deferred revenue and expense:

1. Incorrect Allocation:

• Ensure that deferred revenue and expense are allocated correctly based on the chosen method (Days or Months).

2. Missing Deadlines:

• If using manual journal entries, ensure that they are created and submitted on time to avoid delays in recognizing revenue or expense.

3. Lack of Reconciliation:

• Failing to regularly reconcile deferred accounts can lead to errors in financial reporting.

Important Points to Remember

1. Automate Where Possible:
   Automating deferred accounting processes saves time and reduces the risk of errors.

2. Regularly Review Reports:
   Use the Deferred Revenue/Expense Report to ensure that deferred entries are being processed correctly.

3. Train Your Team:
   Proper training ensures that your team can effectively manage deferred revenue and expenses.

4. Stay Compliant:
   Regularly review your deferred accounting processes to ensure compliance with accounting standards.

Conclusion

Managing deferred revenue and expense effectively is crucial for accurate financial reporting and compliance with accounting standards. By following the best practices outlined in this guide, you can streamline your deferred accounting processes in iVendNext, reduce the risk of errors, and ensure that your financial statements reflect the true state of your business. Whether you choose automatic or manual processing, proper configuration, regular reviews, and team training are key to success.