Deferred Revenue Journal Entry

Deferred revenue journal entry.

Deferred revenue journal entry. For example suppose a business provides web design services and invoices for annual maintenance of 12 000 in advance. Deferred revenue is a liability account that represents the obligation that the company owes to its customer when it receives the money in advance. After the first month of your client s using it you will earn 30 360 12 of revenue. In simple terms deferred revenue means the revenue that has not yet been earned by the products services are delivered to the customer and is receivable from the same.

Debit deferred revenue 30. Credit subscription revenue 30. What is deferred revenue. Likewise after the company delivers goods or performs services it can make the journal entry to transfer the deferred revenue to revenue.

The seller records this payment as a liability because it has not yet been earned deferred revenue is common among software and insurance providers who require up front payments in exchange for service periods that may last for many months. Deferred revenue is a payment from a customer for future goods or services. When a customer pays an annual hosting service fee in advance the journal entry of the abc company would be as follows. Now the deferred revenue amount will be 330 360 30.

Debit cash total amount credit deferred revenue total amount upon completion debit deferred revenue total amount credit subscription revenue total amount if you recognize this revenue within a monthly period which should be done to facilitate your annual returns then you simply repeat step 2 with the partial amount until the credit subscription revenue is 0. Your accountants will need to transfer 30 from the deferred revenue account to the earned revenue account using such a journal entry. A deferred revenue journal entry is needed when a business supplies its services to a customer and the services are invoiced in advance.