Overview

Deferred revenue arises when businesses get paid upfront for goods or services delivered later. Managing it correctly keeps financial reports accurate and compliant. iVendNext streamlines this with automation. This article walks you through setting up and using deferred revenue in iVendNext to easily track advance payments and recognize revenue over time.

What is Deferred Revenue?

Deferred revenue, also known as unearned revenue, refers to payments received in advance for goods or services that are to be delivered or performed in the future. Since the company has an obligation to deliver the product or service, deferred revenue is recorded as a liability on the balance sheet until the revenue is earned.

Example:
If you sell a one-year software subscription for $1,200, you receive the full payment upfront. However, you can’t recognize the entire amount as revenue immediately. Instead, you recognize $100 each month as revenue over the 12-month period. The remaining amount is recorded as deferred revenue.

Why Use Deferred Revenue?

The section below explains why we should use Deferred Revenue in iVendNext:

1. Accurate Financial Reporting:
   Deferred revenue ensures that revenue is recognized in the correct accounting periods, providing a more accurate picture of your business’s financial health.

2. Compliance with Accounting Standards:
   Properly managing deferred revenue is essential for compliance with accounting standards such as GAAP and IFRS.

3. Automation:
   iVendNext automates the creation of deferred revenue entries, reducing the need for manual calculations and minimizing the risk of errors.

4. Efficiency:
   Automated journal entries and reporting save time and streamline your accounting processes.

Steps to Use Deferred Revenue

Using deferred revenue in iVendNext involves a few key steps, from configuring the settings to creating sales invoices and reviewing journal entries. Here’s a step-by-step guide:

1. Configure Deferred Revenue Settings

Before you can use deferred revenue, you need to configure the settings in iVendNext. Here’s how:

1. Go to Home > Accounting > Accounting Masters > Accounts Settings.

2. Look for the Deferred Accounting section.

3. Configure the following settings:

• Automatically Process Deferred Accounting Entry: Enable this setting to automatically process deferred revenue entries.

• Book Deferred Entries Based On: Choose between Days or Months for allocating deferred revenue.

• Book Deferred Entries Via Journal Entry: Enable this option if you prefer to book deferred entries via journal entries.

• Submit Journal Entries: Enable this option to automatically submit journal entries without manual intervention.

2. Enable Deferred Revenue in the Item Master

Next, you need to enable deferred revenue for specific items in the Item Master. Here’s how:

1. Go to the Item Master and select the item for which you want to enable deferred revenue.

2. Under the Deferred Revenue section, check the Enable Deferred Revenue box.

3. Select a Deferred Revenue Account (preferably a liability account).

4. Specify the number of months over which the revenue should be deferred.

3. Create a Sales Invoice for Deferred Revenue

Once deferred revenue is enabled for an item, you can create a sales invoice. Here’s how:

1. Go to Home > Accounting > Sales > Sales Invoice.

2. Create a new sales invoice and add the deferred revenue item.

3. When you save the invoice, iVendNext will credit the Deferred Revenue Account instead of the income account.

4. The system will automatically fetch the account and service start/end dates if you’ve set them in the Item Master.

4. Review Automatic Journal Entries

iVendNext automatically creates journal entries to recognize deferred revenue over time. Here’s how it works:

1. At the end of each month, iVendNext will create journal entries to debit the deferred revenue account and credit the income account based on the service period.

2. If you’ve enabled Book Deferred Entries Via Journal Entry, you can review and approve the journal entries before posting.

3. If you’ve enabled Submit Journal Entries, the journal entries will be automatically submitted without manual intervention.

5. Review the Deferred Revenue Report

iVendNext provides a Deferred Revenue/Expense Report that allows you to track and review deferred revenue entries. Here’s how to use it:

1. Go to Home > Accounting > Reports > Deferred Revenue/Expense Report.

2. The report shows the actual and expected postings for deferred revenue at both the item and invoice levels.

3. Use the report to ensure that deferred revenue is being recognized correctly and to reconcile your accounts.

Important Points to Remember

Some important points to remember when dealing with Deferred Revenue are summarized below:

1. Automatic vs. Manual Processing:
   Decide whether you want to process deferred revenue entries automatically or manually based on your business needs.

2. Booking Based on Days or Months:
   Choose the booking method that best suits your accounting practices. Booking based on Days is more accurate but may require more calculations.

3. Journal Entry Options:
   If you prefer more control over deferred entries, consider booking them via journal entries and enabling automatic submission.

4. Regularly Review Reports:
   Use the Deferred Revenue/Expense Report to ensure that deferred revenue is being processed correctly.