Difference between revisions of "Recognizing Deferred Income"
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Latest revision as of 12:01, 5 September 2016
Deferred income recognition is an accounting process used so that income can be recognized over a period of time rather than at the time of invoicing or receiving payment.
Typically with this process transactions are initially recognized under a deferred liability account(s). On a monthly basis the Recognized Income Report is run to determine what revenue needs to be moved from that deferred liability account(s) to the actual income account(s). A general journal entry is then manually entered into the accounting software to adjust for this.
Recognized Income Report
The recognized income report easily provides the revenue amount that needs to be recognized each month.
Before using the recognized income reports, account codes need to be assigned within the chart of accounts. Each deferred liability account should have its own account code so that revenue can be recognized and moved to the appropriate income account each month.
Setting up the required account codes is done through the Chart of Accounts. See Chart of Accounts for more details.
Using the recognized income report
To run this report
- Go to the Billing module and select the Reports tab.
- In the Executive section select the appropriate version of the report by payment date or invoice date.
- Specify the report date and select the account code that needs to be reported on, and adjust any other options as desired.
- Click Refresh Report to generate the report which can then be reviewed on screen, downloaded, or printed.
What is the Recognized Income checkbox that appears when I create invoices?
Those that recognize income on a deferred basis have an option to defer income on any invoice line item. A checkbox appears on invoices that allows for specifying the number of months that the income should be recognized over.
Recognition of this income would begin on the Invoice date, Due date, or Payment date depending on the report that is run and the selections that are made. These recognition reports are titled Recognized Income by Invoice Date and Recognized Income by Payment Date in the Billing, Reports tab under the Executive section. A detail or summary view can be generated. Previously, recognized income was only possible with membership fees and dues items. This selection makes it possible to recognize deferred income for any invoiced item.