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Handling Deferred Revenue

← Accounting Support

Your accounting may require to book deferred revenue to a dedicated account.

Understanding Deferred Revenue

Generally, deferred revenue (or deferred income) refers to unearned money – that is, payments for goods or services to be delivered in the future. Usually, you record this revenue as a liability until you have made the delivery (or actually earned the income). At this time, the recorded liability is converted into revenue.

Deferred revenue is very common with service providers, who typically request up-front payments in exchange for future service periods.

Deferred Revenue in JustOn

JustOn Billing & Invoice Management can distribute the revenue of an invoice to one or multiple future booking periods when using the Service Period, Booking Month, Service Month or Calendar Year revenue recognition rules. The deferred revenue as well as the complete tax amount are booked in the first involved booking period, based on the booking date set on the invoice. Consequently, the revenue amount booked during the defined period will be "taken out" from the deferred revenue account. For examples, see Revenue Deferral to Multiple Booking Periods.

The revenue recognition rules Permanent Month and Permanent Quarter also create deferred revenue. These rules are intended to be used in combination with service period-based installments (Service Month or Service Quarter, respectively) to model "permanent" invoices. If set up accordingly, JustOn Billing & Invoice Management considers each installment period like a single invoice with respect to the booking detail creation: it creates Revenue, Tax and Deferred (if a period spans multiple months) booking details for each period. To this end, the tax recognition rule Sync With Revenue must not be used. For examples, see Permanent Invoice.

JustOn Billing & Invoice Management creates individual deferred revenue bookings that are split along the applied tax rate in the first involved booking period. The subsequent bookings will be, however, combined – no longer separated by tax rate.

In certain circumstances, the service period of an invoice line item may be after the invoice date but still in the same month. In this case, JustOn also produces deferred revenue booking details. For an example, see Revenue Deferral Within One Month.

For JustOn Billing & Invoice Management to generate a booking detail for the deferred revenue, you must create a corresponding Collective Accounts custom setting of the type Deferred.

By default, JustOn Billing & Invoice Management fills the field Business Partner Account Number in booking details for deferred revenue using the value of the Business Partner Account field of the corresponding Collective Accounts custom setting record. Your business use case, however, may require to use the value of the custom field ON_DebtorNo on the account instead. To support this scenario, you must activate the corresponding global setting.

Info

The tax recognition rule Sync With Revenue creates an individual tax booking detail for each revenue booking detail that is created using the Service Month revenue recognition rule, which disables the deferred revenue booking.

DATEV automatic accounts and revenue deferral

When transferring bookkeeping data to DATEV, you can, generally, configure JustOn to use gross values when creating bookkeeping data to support automatic accounts (Automatikkonten).

If, however, you use revenue recognition rules to distribute revenues to future booking periods (deferred revenue), you must book net revenues and taxes separately. That is, you either

  • do not use DATEV automatic accounts for booking deferred revenue, or
  • switch off the automatic tax calculation – using the custom booking code field BuCode set to 40 with the relevant booking details (see Enabling Data Transfer to DATEV).

Example Use Cases

Revenue Deferral to Multiple Booking Periods

Consider the following example: There is an invoice whose amount is to be distributed equally to four booking periods using the Booking Month recognition rule. Your accounting requires the deferred revenue to be booked to the account 2500. To this end, you create the following collective account setting:

Field Value
Name Deferred Revenue
Type Deferred
Account 2500
Matching service period, one tax rate

Assume the following invoice:

# Quantity Unit Price Billing Factor Service Period Start Service Period End Tax Rate Pos Total (net)
1 1 100,00 4 2018-05-01 2018-08-31 19% 400,00
Subtotal Net 400,00
Tax 76,00
Grand Total 476,00

JustOn generates the following booking details on invoice finalization:

# Booking Period Type Amount Notes
1 2018-05 Tax 76 The tax is always booked in the first booking period.
If there is a corresponding collective account setting for taxes, it specifies the account number.
2 Revenue 100 1/4 of the revenue is booked in the first booking period.
The account number is taken from a corresponding G/L accounts setting.
3 Deferred 300 3/4 of the revenue is booked to the deferred revenue account in the first booking period.
The account number is taken from the corresponding collective account setting ( 2500).
4 2018-06 Revenue 100 1/4 of the revenue is booked in the second booking period.
5 Deferred -100 1/4 of the revenue is taken out from the deferred revenue account to offset the booked revenue in the second booking period.
6 2018-07 Revenue 100 1/4 of the revenue is booked in the third booking period.
7 Deferred -100 1/4 of the revenue is taken out from the deferred revenue account to offset the booked revenue in the third booking period.
8 2018-08 Revenue 100 1/4 of the revenue is booked in the fourth booking period.
9 Deferred -100 1/4 of the revenue is taken out from the deferred revenue account to offset the booked revenue in the fourth booking period.
Matching service period, multiple tax rates

Now assume there are two invoice line items with different tax rates.

# Quantity Unit Price Billing Factor Service Period Start Service Period End Tax Rate Pos Total (net)
1 1 100,00 4 2018-05-01 2018-08-31 19% 400,00
2 1 50,00 4 2018-05-01 2018-08-31 7% 200,00
Subtotal Net 600,00
Tax (19%) 76,00
Tax (7%) 38,00
Grand Total 714,00

Accordingly, JustOn generates the following booking details on invoice finalization:

# Booking Period Type Amount Notes
1 2018-05 Tax 76 Taxes are booked in the first booking period – if set accordingly, to separate accounts.
2 Tax 38
3 Revenue 150 1/4 of the (combined) revenue is booked in the first booking period.
4 Deferred 300 3/4 of the revenue taxed 19% is booked to the deferred revenue account in the first booking period.
5 Deferred 150 3/4 of the revenue taxed 7% is booked to the same deferred revenue account in the first booking period.
6 2018-06 Revenue 150 1/4 of the (combined) revenue is booked in the second booking period.
7 Deferred -150 1/4 of the (combined) revenue is taken out from the deferred revenue account to offset the booked revenue in the second booking period.
8 2018-07 Revenue 150 1/4 of the (combined) revenue is booked in the third booking period.
9 Deferred -150 1/4 of the (combined) revenue is taken out from the deferred revenue account to offset the booked revenue in the third booking period.
10 2018-08 Revenue 150 1/4 of the (combined) revenue is booked in the fourth booking period.
11 Deferred -150 1/4 of the (combined) revenue is taken out from the deferred revenue account to offset the booked revenue in the fourth booking period.
Service period different from booking month, one tax rate

Now assume the service period does not start at the beginning (or end at the end) of a month. In this case, the booking amount is calculated proportionally – based on the number of relevant days – for this month.

# Quantity Unit Price Billing Factor Service Period Start Service Period End Tax Rate Pos Total (net)
1 1 100,00 4 2018-05-10 2018-09-09 19% 400,00
Subtotal Net 400,00
Tax 76,00
Grand Total 476,00

Following this example, the May part is 22 days, so the May "revenue portion" is calculated for 22 days like (100/31) x 22 = 70,97. The remainder (100 - 70,97 = 29,03) is booked in September. Consequently, JustOn generates the following booking details on invoice finalization:

# Booking Period Type Amount Notes
1 2018-05 Tax 76,00 The tax is always booked in the first booking period.
2 Revenue 70,97 The "revenue portion" for the first (incomplete) month ((100/31) x 22 = 70,97) is booked in the first booking period.
3 Deferred 329,03 3/4 of the revenue plus the remaining revenue from the first service period month (100 - 70,97 = 29,03) is booked to the deferred revenue account in the first booking period.
4 2018-06 Revenue 100,00 1/4 of the revenue is booked in the second booking period.
5 Deferred -100,00 1/4 of the revenue is taken out from the deferred revenue account to offset the booked revenue in the second booking period.
6 2018-07 Revenue 100,00 1/4 of the revenue is booked in the third booking period.
7 Deferred -100,00 1/4 of the revenue is taken out from the deferred revenue account to offset the booked revenue in the third booking period.
8 2018-08 Revenue 100,00 1/4 of the revenue is booked in the fourth booking period.
9 Deferred -100,00 1/4 of the revenue is taken out from the deferred revenue account to offset the booked revenue in the fourth booking period.
10 2018-09 Revenue 29,03 The remaining revenue from the first service period month (100 - 70,97 = 29,03) is booked in the fifth booking period.
11 Deferred -29,03 The remaining revenue from the first service period month is taken out from the deferred revenue account to offset the booked revenue in the fifth booking period.
Short service period across two months, one tax rate

Assume again the service period does not start at the beginning (or end at the end) of a month so that the booking amount is calculated proportionally. Now if the service period is less than one month, the calculation is a bit trickier.

Example invoice:

# Quantity Unit Price Service Period Start Service Period End Tax Rate Pos Total (net)
1 1 100,00 2019-05-25 2019-06-03 19% 100,00
Subtotal Net 100,00
Tax 19,00
Grand Total 119,00

The service period is just ten days – seven in May (7/31), three in June (3/30). Since there is no complete month, the revenue calculation for May must "scale" the complete amount to the given period portions like 100/(7/31+3/30) x 7/31 = 69,31. The remainder is calculated like 100 - 69,31 = 30,69. It is first booked to the deferred revenue account and booked as revenue in June. Consequently, JustOn generates the following booking details on invoice finalization:

# Booking Period Type Amount Notes
1 2019-05 Tax 19,00 The tax is booked in the first booking period.
2 Revenue 69,31 The "revenue portion" for the first (incomplete) month (100/(7/31+3/30) x 7/31 = 69,31) is booked in the first booking period.
3 Deferred 30,69 The remaining revenue from the incomplete service period month (100 - 69,31 = 30,69) is booked to the deferred revenue account in the first booking period.
4 2019-06 Revenue 30,69 The remaining revenue from the first service period month (100 - 69,31 = 30,69) is booked in the second booking period.
5 Deferred -30,69 The remaining revenue from the first service period month is taken out from the deferred revenue account to offset the booked revenue in the second booking period.

Revenue Deferral Within One Month

Now consider the following use case: There is an invoice created on 2019-05-10. The service period of the invoice line item, however, starts on 2019-05-15 and ends on 2019-05-20. That is, all dates are within one month – but applying the revenue recognition rule Booking Month and the service period after the invoice date make JustOn produce deferred revenue booking details.

Example invoice (invoice date: 2019-05-10):

# Quantity Unit Price Service Period Start Service Period End Tax Rate Pos Total (net)
1 1 100,00 2019-05-15 2019-05-20 19% 100,00
Subtotal Net 100,00
Tax 19,00
Grand Total 119,00

JustOn generates the following booking details on invoice finalization:

# Booking Period Type Debit/Credit Flag Booking Date Amount
1 2019-05 Deferred H (Credit) 2019-05-10 119
2 Deferred S (Debit) 2019-05-15 119
3 Revenue H (Credit) 2019-05-15 100
4 Tax H (Credit) 2019-05-15 19

Permanent Invoice

Example invoice
  • Date 2023-07-20
  • Service period start 2023-07-20
# Quantity Unit Price Billing Factor Billing Unit Service Period Start Service Period End Tax Rate Pos Total (net)
1 1 1200,00 0,69803 Year 2023-10-10 2024-06-20 19% 837,64
Subtotal Net 837,64
Tax 159,15
Grand Total 996,79
Service month-based invoicing

Produced installments

# Service Period Start Service Period End Amount
1 2023-09-20 2023-10-19 39,67
2 2023-10-20 2023-11-19 119,00
3 2023-11-20 2023-12-19 119,00
4 2023-12-20 2024-01-19 119,00
5 2024-01-20 2024-02-19 119,00
6 2024-02-20 2024-03-19 119,00
7 2024-03-20 2024-04-19 119,00
8 2024-04-20 2024-05-19 119,00
9 2024-05-20 2024-06-19 119,00
10 2024-06-20 2024-07-19 5,12

Produced booking details

# Booking Date Type Amount Tax Base Amount
1 2023-09-20 Deferred 33,33
2 2023-09-20 Tax 6,33 33,33
3 2023-10-10 Deferred -33,33
4 2023-10-10 Revenue 33,33
5 2023-10-20 Deferred 61,29
6 2023-10-20 Tax 19,00 100,00
7 2023-10-20 Revenue 38,71
8 2023-11-01 Deferred -61,29
9 2023-11-01 Revenue 61,29
10 2023-11-20 Deferred 63,33
11 2023-11-20 Tax 19,00 100,00
12 2023-11-20 Revenue 36,67
13 2023-12-01 Deferred -63,33
14 2023-12-01 Revenue 63,33
15 2023-12-20 Deferred 61,29
16 2023-12-20 Tax 19,00 100,00
17 2023-12-20 Revenue 38,71
18 2024-01-01 Deferred -61,29
19 2024-01-01 Revenue 61,29
20 2024-01-20 Deferred 61,29
21 2024-01-20 Tax 19,00 100,00
22 2024-01-20 Revenue 38,71
23 2024-02-01 Deferred -61,29
24 2024-02-01 Revenue 61,29
25 2024-02-20 Deferred 65,51
26 2024-02-20 Tax 19,00 100,00
27 2024-02-20 Revenue 34,49
28 2024-03-01 Deferred -65,51
29 2024-03-01 Revenue 65,51
30 2024-03-20 Deferred 61,29
31 2024-03-20 Tax 19,00 100,00
32 2024-03-20 Revenue 38,71
33 2024-04-01 Deferred -61,29
34 2024-04-01 Revenue 61,29
35 2024-04-20 Deferred 63,33
36 2024-04-20 Tax 19,00 100,00
37 2024-04-20 Revenue 36,67
38 2024-05-01 Deferred -63,33
39 2024-05-01 Revenue 63,33
40 2024-05-20 Deferred 61,29
41 2024-05-20 Tax 19,00 100,00
42 2024-05-20 Revenue 38,71
43 2024-06-01 Deferred -61,29
44 2024-06-01 Revenue 61,29
45 2024-06-20 Tax 0,82 4,31
46 2024-06-20 Revenue 4,31
Service quarter-based invoicing

Produced installments

# Service Period Start Service Period End Amount
1 2023-07-20 2023-10-19 38,81
2 2023-10-20 2024-01-19 357,00
3 2024-01-20 2024-04-19 357,00
4 2024-04-20 2024-07-19 243,98

Produced booking details

# Booking Date Type Amount Tax Base Amount
1 2023-07-20 Deferred 32,61
2 2023-07-20 Tax 6,20 32,61
3 2023-10-10 Deferred -32,61
4 2023-10-10 Revenue 32,61
5 2023-10-20 Deferred 261,29
6 2023-10-20 Tax 57,00 300,00
7 2023-10-20 Revenue 38,71
8 2023-11-01 Deferred -100,00
9 2023-11-01 Revenue 100,00
10 2023-12-01 Deferred -100,00
11 2023-12-01 Revenue 100,00
12 2024-01-01 Deferred -61,29
13 2024-01-01 Revenue 61,29
14 2024-01-20 Deferred 261,29
15 2024-01-20 Tax 57,00 300,00
16 2024-01-20 Revenue 38,71
17 2024-02-01 Deferred -100,00
18 2024-02-01 Revenue 100,00
19 2024-03-01 Deferred -100,00
20 2024-03-01 Revenue 100,00
21 2024-04-01 Deferred -61,29
22 2024-04-01 Revenue 61,29
23 2024-04-20 Deferred 168,36
24 2024-04-20 Tax 38,95 205,03
25 2024-04-20 Revenue 36,67
26 2024-05-01 Deferred -100,00
27 2024-05-01 Revenue 100,00
28 2024-06-01 Deferred -68,36
29 2024-06-01 Revenue 68,36