Work a Deferred Revenue Entry
Record customer prepayments as deferred revenue until earned.
A $12,000 customer prepayment arrives before a six-month support service begins. Accrual deferral: cash now, revenue as earned The trap is equating cash collected with revenue earned, which overstates current performance and understates future periods. Receipt Debit cash $12,000. Cash increased on the payment date. Obligation Credit deferred revenue $12,000. The company owes future service, so the offset is a liability. Schedule Six months of service means $12,000 / 6 = $2,000 per month. The recognition pattern follows the service period. Release Each month: debit deferred revenue $2,000; credit support revenue $2,000. Revenue appears as the service is earned. Before:…
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