How to Set Up Deferred Revenue in QuickBooks
By Steve McDonnell
If your company sells monthly subscriptions, such as a subscription to a website, you may sometimes offer discounts when a subscriber buys a year's subscription. However, even though your company receives a full year's payment in advance, you can't recognize the revenue until you deliver the value to the customer. This means that in QuickBooks, you must track the income as deferred revenue and recognize one-twelfth of it each month for a year.
Launch QuickBooks and sign in with a username and password that has administrative rights.
Create a liability account for the deferred revenue received. Select "Lists | Chart of Accounts | Account | New" to add a new account. Choose "Other Account Types," select "Other Current Liability" from the list of account types, and then click "Continue."
Type an account name -- for example, "Deferred Revenue" -- enter a description, and then select "Save & Close."
Create annual and monthly items for the subscriptions. Select "Lists | Item List | Item | New" to add a new item.
Choose "Other Charge" as the Type, and then enter a name for the charge -- for example, "Annual Subscription." Type the same name in the description field, and then enter the discounted amount of the annual subscription in the Amount box. Select the deferred revenue account in the Account box, and then choose "Next" to add an item for the monthly charge.
Select "Other Charge" as the item type, and then enter a name and description for the monthly subscription revenue you can recognize. Select the subscription fee income account as the Account, and then choose "Next" to add an item for the monthly subscription prepayment.
Select "Other Charge" as the item type, and then enter a name an description for the monthly prepayment for the subscription. Enter the amount, which should be the same as the previous item, as a negative number. Choose the deferred revenue account from the Account selection box.
Select the "Create Invoices" icon, and then select a customer from the selection box. Choose the "Item Code" selection box, and then pick the annual subscription item. Click "Save & Close" to save the invoice.
Select the "Receive Payments" icon, select the customer, enter the amount received for the annual subscription, and then choose "Save & Close" to record the customer's payment.
Select "Create Invoices," and then select a customer from the selection box. Choose the monthly subscription charge. Add another item, and then choose the monthly prepayment charge to create an invoice that totals to zero and that transfers money from the liability account to the income account.
Choose "Edit," followed by "Memorize Invoice" to save the invoice as a template you can use to record revenue each month.
Information in this article applies to QuickBooks 2013. It may vary slightly or significantly with other versions or products.
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Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.