How to account for deferred revenue

Deferred revenue refers to advance payments a company receives for goods or services that are to be delivered or performed in the future. The company receiving the prepayment records the amount as unearned revenue on its balance sheet as a liability.

In Clear Books you first create a sales invoice with a sales account code. As the goods or service is delivered over time, it can be recognised as revenue in Clear Books by creating a recurring journal template.

Step 1.

Head to Sales > Invoices and click on the Create invoice button.

Step 2.

Fill in the details on the invoice, in this example I am using the Revenue account. 

Hit the Save button when complete.

Step 3. 

To account for any initial revenue you can create a journal on the Tools > Journals menu to Dr Revenue and Cr Deferred Revenue. In the example below £900 of the sales invoice in Step 2 is being recorded as Deferred Revenue.

Step 4.

You can then use a recurring journal template to automate the process of reducing the Deferred Revenue balance. In this example, £100 is being moved from Revenue to Deferred Revenue at the end of each month.