Set up a revenue recognition schedule in QuickBooks Online Advanced
A client requests on-site service to resolve their office network. I issue an invoice, and the client pays it. Ka-Ching! I make $400. I receive two bank notifications on my mobile, indicating two payments of $2,400 each from two customers for the yearly maintenance service. Wow! That’s great; it adds $4,800 to my sales revenue. I offer a monthly IT newsletter service for $60 per year. Ten customers subscribed, and my bank balance is $600 richer.
Good! Sales are incredible. I instructed my accountant to prepare a profit and loss statement for the month. “What, why only $850?” I asked my accountant. The sales revenue should be $5,800!
Unfortunately, my accountant disagrees. He states that the $5,400 received from maintenance and the newsletter is a prepayment for the year of service; I have to break it down and recognise only one month, which amounts to $450, during which the service occurred. The remainder represents prepayments that I must hold in the deferred income account.
Wasn’t deferred income also income? A big question mark floats in my brain—What is deferred income?
As he explained, deferred income is a current liability on the balance sheet. It remains unearned until goods and services are fulfilled and transferred to the sales revenue account. Thus, the sales invoice will initially park the amount in the deferred income account, followed by the number of recognition periods to journal it down to the sales revenue account.
Oh, it doesn’t sound very easy. How can I record a journal entry and remember those debits and credits?
“Don’t worry; it’s not so complicated,” my accountant assured me. Well, ‘Don’t worry’ always makes me worry the most.
He opened a web browser, logged into the QuickBooks Online Advanced portal, and displayed the revenue recognition page. The interface was user-friendly, and he added a new revenue recognition template from the manage template page to illustrate his point, making the process seem straightforward and manageable.
“What’s a revenue recognition template for?” I asked.
“It’s a method of recognising the revenue,” he says, and creates a template to recognise the revenue evenly across 12 months. He also added a revenue recognition item—a newsletter subscription—and associated it with the template, the IT newsletter I created in the item list, and a deferred income account.
My accountant used the newly created newsletter subscription item in a sales invoice and saved it for future reference. He showed me a recognition schedule and explained, “QuickBooks posts the amount to deferred income and recognises it evenly across the period specified in the template.”
Amazing! He reassured me that I don’t have to worry about debits and credits or remember to enter a journal entry.
“Good!” I like QuickBooks Online Advanced’s revenue recognition feature.